One of the leading Canadian railroads, Canadian Pacific Railway Limited (CP - Analyst Report), has announced the sale of the west end of its Dakota, Minnesota & Eastern railroad line for $210 million to Genesee & Wyoming Inc. (GWR - Snapshot Report). The deal is expected to close in mid 2014 and is subject to the approval of the U.S. Surface Transportation Board. We believe the sale of the asset would streamline operations at Canadian Pacific while also provide with an influx of capital for future infrastructural developments.
The deal would allow Genesee & Wyoming to gain from 52,000 carloads generated annually in the west end network, which includes shipments of grain, bentonite clay, ethanol, fertilizer and other products. While for Canadian Pacific, the sale can provide a better opportunity to manage operations at various networks and trim less profitable routes for cost control.
Canadian Pacific focuses on upgrading its network capabilities by consolidating and repairing facilities that will enable it to operate longer and heavier trains as well as deliver on-time performance. The company is also building a network for shipping frac sand, pipe and construction material as well as other goods required for oil and gas shale production to benefit from the current boom in the energy markets.
To support these developments, the company increased its estimated capital spending for the year by an additional $75–$100 million over $1.1 billion estimated previously. We believe the sale of assets can partially contribute to the current capital requirements of the company.
Canadian Pacific currently has a Zacks Rank #3 (Hold).
Better-ranked stocks include CSX Corp. and Kansas City Southern, both having a Zacks Rank #2 (Buy).