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Here's How Much a $1000 Investment in Canadian Pacific Made 10 Years Ago Would Be Worth Today

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How much a stock's price changes over time is a significant driver for most investors. Not only can price performance impact your portfolio, but it can help you compare investment results across sectors and industries as well.

Another factor that can influence investors is FOMO, or the fear of missing out, especially with tech giants and popular consumer-facing stocks.

What if you'd invested in Canadian Pacific (CP - Free Report) ten years ago? It may not have been easy to hold on to CP for all that time, but if you did, how much would your investment be worth today?

Canadian Pacific's Business In-Depth

With that in mind, let's take a look at Canadian Pacific's main business drivers.

Canadian Pacific Railway Limited, founded in 1881 and headquartered in Calgary, Canada, operates a transcontinental railway network in Canada and the United States.  It focuses on providing logistics and supply chain expertise services.

Canadian Pacific serves the principal business centers of Canada from Montreal to Vancouver, as well as the U.S. Northeast and Midwest regions. The company has extended its network reach by establishing alliances and agreements with other Class I railways in North America, which allows it to provide services and access markets across North America beyond its own rail network. As of December 31, 2020, Canadian Pacific operated 19,236 track miles.

Canadian Pacific, whose fiscal year coincides with the calendar year, also serves markets in Europe and the Pacific Rim through direct access to the Port of Montreal in Quebec, and the Port of Vancouver in British Columbia, respectively. Moreover, its equipment includes owned and leased locomotives, railcars etc. At 2020-end, 1,336 locomotive units were owned and 76 leased.

Canadian Pacific derives revenues from Freight transport (accounted for approximately 97.8% of the total revenues generated by the company in 2020) and Other (non-frieght) services (2.2%).

Freight revenues, which improved marginally year over year in 2020, are earned from transporting bulk, merchandise and intermodal goods, and include fuel recoveries billed to the customers.

Freight segment consists of Grain (24% of freight revenues in 2020), Coal (8%), Sulfur and Fertilizer (4%), Forest products (4%), Energy ,Chemicals and PIastics (20%), Metals, Minerals and Consumer products (8%), Automotive (4%) and Intermodal (21%). Other revenues are generated mainly from leasing of certain assets, switching fees, routine land sales and income from business partnerships.

Canadian Pacific is likely to take over U.S.-based railroad operator Kansas City Southern next year. The enterprise value of the cash-and-stock deal is approximately $29 billion and includes an assumed $3.8 billion of outstanding debt of Kansas City Southern. Canadian Pacific’s CEO Keith Creel will be at the helm of the merged entity, to be known as Canadian Pacific Kansas City. The merged entity will have its global headquarters at Calgary.

Bottom Line

Anyone can invest, but building a successful investment portfolio takes a combination of a few things: research, patience, and a little bit of risk. So, if you had invested in Canadian Pacific a decade ago, you're probably feeling pretty good about your investment today.

A $1000 investment made in May 2011 would be worth $6,439.99, or a gain of 544%, as of May 28, 2021, according to our calculations. This return excludes dividends but includes price appreciation.

Compare this to the S&P 500's rally of 215.59% and gold's return of 19.90% over the same time frame.

Looking ahead, analysts are expecting more upside for CP.

Canadian Pacific, which is likely to buy Kansas City Southern next year, is performing brilliantly with respect to grain movement. To this end, the company set a record pertaining to movement of Canadian grain and grain products in 2020. In first-quarter 2021, grain revenues increased 7.2% year over year. We are also impressed by Canadian Pacific's efforts to reward its shareholders through dividends and buybacks. Notably, over the long term, the company expects adjusted dividend payout ratio in the 25-30% range. With gradual recovery in freight volumes, the strong rebound in the automotive business (automotive freight revenues were up 24.1% in first-quarter 2021) is encouraging. However, the company's high debt levels are worrisome. Moreover, high capital expenditures at Canadian Pacific may be a spoilsport.

 

Shares have gained 7.56% over the past four weeks and there have been 7 higher earnings estimate revisions for fiscal 2021 compared to none lower. The consensus estimate has moved up as well.

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