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Canadian Pacific Scales 52-Week High on Favorable Freight

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Shares of Canadian Pacific Railway Limited (CP - Free Report) hit a 52-week high of $208.33 during the trading session on Aug 27 before retracing a bit to close at $207.69. Moreover, the stock has surged 35.2% in a year, outperforming the industry’s 33.7% growth.


Let’s delve into the reasons behind this upsurge.

Reasons Behind the Rally

Strong freight demand has been aiding carriers across the globe and Canadian Pacific is no exception. With freight revenues accounting for the major share of the company’s top line, a rise in shipping demand is immensely beneficial to its growth. Notably, freight revenues improved 7% year over year in the second quarter of 2018. In fact, higher shipments of key commodities drove overall results. Freight revenues in some key segments like Energy, chemicals and plastics, Automotive and Intermodal climbed 29%, 15% and 7%, respectively. Moreover, the buoyant freight scenario is anticipated to sustain in the coming years as well.

The recent labor deal ratifications are other positives for the company. Last month, Canadian Pacific ratified its four-year agreement with the union representing conductors and locomotive engineers. Also, System Council No. 11 of the International Brotherhood of Electrical Workers ratified a three-year agreement. The contracts aimed at catering to needs of the various labor groups imply greater operational efficiency.

The company’s initiatives to reward shareholders through dividends are also encouraging. This May, the company raised its quarterly dividend per share by 15.5%.
On another positive note, the uncertainty over NAFTA (North American Free Trade Agreement) is likely to come to an end soon. While Mexico and the United States have inked an agreement to rework the trade deal, many market watchers expect Canada to sign the same.

On the back of the above tailwinds, the Zacks Consensus Estimate for current-quarter earnings has been moved 0.7% northward over the past 60 days.

Zacks Rank & Key Picks

Canadian Pacific carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are GATX Corporation (GATX - Free Report) , Trinity Industries, Inc. (TRN - Free Report) and SkyWest, Inc (SKYW - Free Report) . While GATX holds a Zacks Rank #2 (Buy), Trinity and SkyWest sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of GATX, Trinity and SkyWest have rallied more than 42%, 28% and 83%, respectively, in a year.

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