Canadian Pacific Railway Limited (CP - Free Report) is currently one of the leading companies of the railroad industry. Shares of the company have rallied 3.6% in the last six months compared with a mere 1% gain of the industry it belongs.
Catalysts Behind the Uptick
The improvement in the coal scenario is very encouraging for railroads, and Canadian Pacific is no exception. In fact, in the second quarter of 2017, coal revenues and volumes improved substantially thereby boosting results. The uptick was owing to an increase in revenues and earnings per share on a year-over-year basis. The grain and potash franchises also performed impressively in the quarter.
Moreover, the company's efforts to control costs are impressive. In the most recently reported quarter, operating ratio (operating expenses as a percentage of revenues on an adjusted basis) improved 330 basis points to 58.7%.
In fact, we are also impressed with the company’s efforts to reward investors through share buybacks and dividend payments. Over the last couple of years, the company has increased its annual dividend by over 20%. In May 2017, the company raised its quarterly dividend per share by 12.5% to C$0.5625 per share.
Estimate Revisions & Other Metrics
Upward estimate revisions reflect optimism in a stock’s prospects. Canadian Pacific scores impressively on this front as well, the Zacks Consensus Estimate for current-year earnings climbed 4.34%, over the last 60 days. For full-year 2017, the same moved up 5% in the considerable period.
Furthermore, the stock has attractive projected earnings per share growth rate of 11. 6% (for three to five years), which compares favorably to its industry’s reading of 10.6%.
Canadian Pacific's trailing 12-month return on equity (ROE) supports its growth potential too. Not only has the company’s ROE of 33.1% displayed an upward trend in the last year, it compares favorably with ROE of 20.8% for the industry it belongs to. This is reflective of the fact that it is efficient in using shareholders’ funds.
Also, the company’s Value Score of B highlights its attractiveness to value-oriented investors right now.
Value investing offers an opportunity to enter the market and grab stocks that have otherwise been overlooked by a majority of investors, and are thus trading at cheap multiples. Going by the price to earnings ratio (F1), the stock doesn’t look expensive at this point. The measure for the stock is 16.9, which is favorable compared with the S&P 500's 19.3. In fact, the stock’s favorable positioning compared to the overall market certainly signals more upside.
Canadian Pacific's Zacks Rank #2 (Buy) when combined with its attractive Value Score makes it a favorable investing option. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Stocks to Consider
Investors interested in the railroad space may also consider Canadian National Railway Ltd. (CNI - Free Report) , USD Partners LP (USDP - Free Report) and Kansas City Southern (KSU - Free Report) . While Canadian National and USD Partners sport a Zacks Rank #1, Kansas City Southern holds a Zacks Rank #2.
Shares of Canadian National and Kansas City Southern have rallied more than 17% and 21%, respectively, so far this year. For full-year 2017, the Zacks Consensus Estimate has climbed 2.1% to 96 cents per share at USD Partners in the last 30 days.
Zacks' 10-Minute Stock-Picking Secret
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.
Learn the secret >>