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Canadian Pacific (CP) Q1 Earnings: What's in the Cards?

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Canadian Pacific Railway Limited (CP - Free Report) is scheduled to report first-quarter 2018 results on Apr 18, after the closing bell.

Last quarter, the company reported a negative earnings surprise of 1.17%. Though both earnings and revenues improved year over year, the same fell short of the Zacks Consensus Estimate.

Let’s see, how things shape up this earnings season.

Factors Likely at Play

Declining revenues at the Grain, Automotive plus Sulphur and Fertilizer segments might hurt the top line in the first quarter like the previous one.

Additionally, the company’s network fluidity issues might affect its customer base and hamper results in the to-be-reported quarter.

The company’s high debt-to-equity ratio further adds to its woes. It currently has a long-term debt-to-equity (expressed as a percentage) of 115.2, comparing unfavorably with the figure of 66.3 for its industry as well as the S&P 500 index’s measure of 80.8.

However, the company’s cost-cutting strategy to drive bottom-line growth is impressive and is anticipated to boost results in the first quarter. This move is also likely to improve the operating ratio. Moreover, high freight revenues are expected to aid results in the soon-to-be-reported period.

Earnings Whispers

Our proven model does not conclusively show that Canadian Pacific is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as highlighted below.

Zacks ESP: Canadian Pacific has an Earnings ESP of -2.79% as the Most Accurate estimate is pegged at $2.10 per share while the Zacks Consensus Estimate stands higher at $2.16. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Canadian Pacific carries a Rank #3, which increases the predictive power of ESP. However, the company needs a positive ESP as well to be confident about an earnings surprise. Hence this combination leaves surprise prediction inconclusive.

We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the stock is witnessing negative estimate revisions.


Stocks to Consider

Investors interested in the broader Transportation sector may consider stocks like American Airlines Group Inc. (AAL - Free Report) , JetBlue Airways Corporation (JBLU - Free Report) and Expeditors International of Washington, Inc. (EXPD - Free Report) as these possess the right combination of elements to deliver an earnings beat this time around.

American Airlines has an Earnings ESP of +3.35% and a Zacks Rank of 3. The company is scheduled to report first-quarter results on Apr 26.

JetBlue Airways is a #3 Ranked player and has an Earnings ESP of +4.28%. The company is slated to release first-quarter numbers on Apr 24. You can see the complete list of today’s Zacks #1 Rank stocks here.

Expeditors is a Zacks #3 Ranked player and has an Earnings ESP of +2.09%. The company will announce first-quarter earnings on May 8.

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