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Here's Why You Should Retain Canadian Pacific (CP) Stock Now
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Canadian Pacific Railway Limited (CP - Free Report) is benefiting from an uptick in freight revenues which is expected to continue. However, escalated fuel costs, a primary headwind, are limiting its bottom-line growth.
Factors Favoring CP
With gradual recovery in freight-market conditions, freight revenues are increasing. It rose 21% year over year in fourth-quarter 2022 and contributed 98% to Canadian Pacific's top line.
In full-year 2022, freight revenues increased 10% despite headwinds like supply-chain woes. The upside was driven by increased freight revenues at key sub-groups like Grain (up 5%), Potash (up 25%), Forest products (up 16%), Metals, minerals and consumer products (up 21%), Automotive (up 16%) and Intermodal (up 30%).
Revenues at Fertilizers and sulfur sub-segment were up 9% year over year. In 2022, total freight revenues per revenue ton-miles rose 11%. Total freight revenues per carload increased 9% year over year.
We are encouraged by the company’s decision to pay dividends even in the current uncertain scenario. In 2022, CP shelled out dividends worth C$707 million, up 39.4% year over year.
Key Risks
Escalating fuel costs pose a threat to the company’s bottom line. Oil price is moving north, primarily because of supply concerns stemming from Russia-Ukraine war.
Notably, the railroad operator’s total operating expenses increased 9% to C$4,789 year over year in 2021, due to a 31% escalation in fuel costs. With increasing fuel costs operating expenses were high (up 15%) in 2022 as well. CP’s debt load is bothersome too.
Zacks Rank & Key Picks
Canadian Pacific currently carries a Zacks Rank #3 (Hold).
American Airlines is being aided by the improved air-travel-demand scenario. Operating revenues in fourth-quarter 2022 increased 39.3% year over year. Buoyant air-travel demand is also reflected by a 16.6% increase of total operating revenues from fourth-quarter 2019 (pre-COVID-19) levels despite 6.1% lower capacity.
Driven by soaring demand on healthy bookings, management expects total unit revenues in the first quarter of 2023 to be roughly 24-27% higher than the level recorded in first-quarter 2022. The AAL stock has evidenced the Zacks Consensus Estimate for first-quarter 2023 earnings being revised upward by 100% in the past 60 days.
Alaska Air reported better-than-expected earnings per share in fourth-quarter 2022, driven by upbeat air-travel demand and favorable pricing.
Alaska Air expects to boost its fleet and workforce in 2023 to meet the anticipated high demand. ALK expects first-quarter 2023 total revenues to increase 29-32% from the first-quarter 2022 actuals. The Zacks Consensus Estimate for ALK’s current-year earnings has improved 12.4% over the past 60 days.
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Here's Why You Should Retain Canadian Pacific (CP) Stock Now
Canadian Pacific Railway Limited (CP - Free Report) is benefiting from an uptick in freight revenues which is expected to continue. However, escalated fuel costs, a primary headwind, are limiting its bottom-line growth.
Factors Favoring CP
With gradual recovery in freight-market conditions, freight revenues are increasing. It rose 21% year over year in fourth-quarter 2022 and contributed 98% to Canadian Pacific's top line.
In full-year 2022, freight revenues increased 10% despite headwinds like supply-chain woes. The upside was driven by increased freight revenues at key sub-groups like Grain (up 5%), Potash (up 25%), Forest products (up 16%), Metals, minerals and consumer products (up 21%), Automotive (up 16%) and Intermodal (up 30%).
Revenues at Fertilizers and sulfur sub-segment were up 9% year over year. In 2022, total freight revenues per revenue ton-miles rose 11%. Total freight revenues per carload increased 9% year over year.
We are encouraged by the company’s decision to pay dividends even in the current uncertain scenario. In 2022, CP shelled out dividends worth C$707 million, up 39.4% year over year.
Key Risks
Escalating fuel costs pose a threat to the company’s bottom line. Oil price is moving north, primarily because of supply concerns stemming from Russia-Ukraine war.
Notably, the railroad operator’s total operating expenses increased 9% to C$4,789 year over year in 2021, due to a 31% escalation in fuel costs. With increasing fuel costs operating expenses were high (up 15%) in 2022 as well. CP’s debt load is bothersome too.
Zacks Rank & Key Picks
Canadian Pacific currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Transportation sector are American Airlines (AAL - Free Report) and Alaska Air Group (ALK - Free Report) , both carrying a Zacks Rank #2 (Buy), presently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
American Airlines is being aided by the improved air-travel-demand scenario. Operating revenues in fourth-quarter 2022 increased 39.3% year over year. Buoyant air-travel demand is also reflected by a 16.6% increase of total operating revenues from fourth-quarter 2019 (pre-COVID-19) levels despite 6.1% lower capacity.
Driven by soaring demand on healthy bookings, management expects total unit revenues in the first quarter of 2023 to be roughly 24-27% higher than the level recorded in first-quarter 2022. The AAL stock has evidenced the Zacks Consensus Estimate for first-quarter 2023 earnings being revised upward by 100% in the past 60 days.
Alaska Air reported better-than-expected earnings per share in fourth-quarter 2022, driven by upbeat air-travel demand and favorable pricing.
Alaska Air expects to boost its fleet and workforce in 2023 to meet the anticipated high demand. ALK expects first-quarter 2023 total revenues to increase 29-32% from the first-quarter 2022 actuals. The Zacks Consensus Estimate for ALK’s current-year earnings has improved 12.4% over the past 60 days.