Canadian Pacific Unveils New Terminal

Canadian Pacific Railway Limited (CP - Analyst Report), one of the leading Canadian railroad companies has begun operations at its latest intermodal terminal at Saskatchewan's Global Transportation Hub in Regina.

The new terminal with actual capacity of 250,000 container handlings per year is located near the company’s main networks between Regina and Moose Jaw. To benefit from the current boom in the energy markets the company is building networks for shipping frac sand, pipe and construction material as well as other goods required for oil and gas shale production.

This would enable an easy access to the main production facilities and provide an opportunity to transport large volumes to key regions. The company has assigned long-term investment of nearly C$2.3 billion for 2011–2028.

However, we remain concerned about the prevailing economic volatility in the U.S. and abroad that may keep Canadian Pacific’s top-line growth under pressure in the near future. Moreover, the near-term growth for the company is expected to be tempered by lower coal production.

Lower natural gas prices resulting in weak utility coal market have raised significant concerns limiting overall coal shipments, despite strong exports to Asian countries. In addition, weak U.S. grain shipment due to volatility in feed shipments will remain significant headwinds for the company.

Further, competitive threats from major rivals like Canadian National Railway Company (CNI - Analyst Report), a highly unionized workforce, and regulatory pressures may limit the upside potential of the stock.

Canadian Pacific currently holds a short-term (1-3 months) Zacks Rank #3 (Hold). For the long term, we have a Neutral recommendation on the stock.