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What's in Store for Canadian Pacific (CP) in Q4 Earnings?

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Canadian Pacific Railway Limited (CP - Free Report) is scheduled to release fourth-quarter 2020 results on Jan 27, after market close.

The company has an impressive record with respect to earnings per share, having outpaced the Zacks Consensus Estimate in three of the last four quarters (missing the same in one). It has a trailing four-quarter earnings surprise of 5%, on average.

With this, let’s discuss the factors that might have impacted the company’s December-quarter performance.

Canadian Pacific Railway Limited Price and EPS Surprise

 

Canadian Pacific Railway Limited Price and EPS Surprise

Canadian Pacific Railway Limited price-eps-surprise | Canadian Pacific Railway Limited Quote

 

Despite the recent improvement, freight volumes are considerably weak on a year-over-year basis. Consequently, the company’s fourth-quarter 2020 performance is likely to have been affected by weakness in freight-revenues compared with fourth-quarter 2019, mainly due to coronavirus-led disruptions. The year-over-year weakness in freight revenues is expected to have limited top-line growth.  Additionally, automotive, intermodal and coal revenues are likely to have hurt the company’s financials during the December-end quarter.

We also expect the company’s bottom-line performance to have been hurt by increase in capital expenses as it is investing significantly to upgrade its facilities.

However, record Canadian grain movement (8.84 million metric tonnes of Canadian grain and grain products) in the fourth quarter is expected to have bolstered the company’s top line. The company had reported its December-end quarter as its best ever quarter with respect to grain shipment.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Canadian Pacific this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive surprise. But that is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Canadian Pacific has an Earnings ESP of -0.29% as the Most Accurate Estimate is pegged at $3.86 per share, lower than the Zacks Consensus Estimate of $3.87. 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 Zacks Rank #3, currently.

Highlights of Q3 Earnings

Canadian Pacific’s third-quarter 2020 earnings (excluding 22 cents from non-recurring items) of $3.09 (C$4.12) per share missed the Zacks Consensus Estimate of $3.22. Quarterly earnings also declined year over year. Quarterly revenues of $1,398.3 million (C$1,863 million) also lagged the Zacks Consensus Estimate of $1421.8 million. The top line declined year over year due to drop in freight revenues amid coronavirus-related woes.

Stocks to Consider

Investors interested in the broader Transportation sector may consider C.H. Robinson Worldwide, Inc. (CHRW - Free Report) , Knight-Swift Transportation Holdings Inc. (KNX - Free Report) and Landstar System, Inc. (LSTR - Free Report) as these stocks possess the right combination of elements to beat estimates this reporting cycle.

C.H. Robinson has an Earnings ESP of +1.01% and is Zacks #3 Ranked, presently. The company will release fourth-quarter 2020 results on Jan 26.

Knight-Swift has an Earnings ESP of +1.10% and a Zacks Rank of 3 at present. The company will release fourth-quarter 2020 results on Jan 27.

Landstar System has an Earnings ESP of +0.57% and is currently a #3 Ranked player. The company will release fourth-quarter 2020 results on Jan 27.

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