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Why Canadian Pacific (CP) is a Must Add to Your Portfolio

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Canadian Pacific Railway Limited (CP - Free Report) is performing impressively at the moment. Also, we are optimistic about the company’s prospects and believe that the time is right for you to add the stock to portfolio as it is poised to carry the momentum ahead.

Let’s take a look into the factors that make this Zacks Rank #1 (Strong Buy) stock a compelling choice for investors right now.

An Outperformer: Canadian Pacific has outperformed its industry on a year-to-date basis. The stock has gained 12.1% compared with the industry’s 7.1% growth.

Year-to-Date Price Performance


Earnings Estimates Moving Up: Annual estimates for Canadian Pacific moved north over the past two months, reflecting analysts’ confidence in the stock. Over this period, the Zacks Consensus Estimate for current-year earnings climbed 6.1%. For 2019, the same has been revised upward to the tune of 7.3% over the same time frame.

Given the wealth of information at the company’s disposal, it is in the best interest of investors to be guided by broker advice and the direction of its estimate revisions. This is because the direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

Solid Growth Prospects: The Zacks Consensus Estimate for Canadian Pacific’s current-year earnings reflects 23.4% improvement year over year. In 2019, the bottom line is anticipated to register 14.7% growth. The stock also has an expected earnings per share growth rate of 13% for the next five years, higher than the industry average of 10.3%.

The scenario is bullish with respect to revenues as well. For 2018, the Zacks Consensus Estimate is pegged at $5.55 billion, mirroring 9.8% revenue growth over 2017. Next year’s average forecast stands at $5.99 billion, reflecting an 8% growth year over year.

Bullish Industry Rank: The industry, to which Canadian Pacific belongs, currently has a Zacks Industry Rank of 20 (out of 250 plus groups). Notably, the favorable rank places the companies in the top 8% of the Zacks industries. Studies have shown that 50% of a stock's price movement is tied to the performance of the industry group it belongs to.

In fact, an average stock in a strong group is likely to outperform a promising stock from a poor industry. This makes it necessary to consider the industry’s performance.  

Shareholder-Friendly Attitude: We are 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 2018, Canadian Pacificraised its quarterly dividend by 15.5% to C$0.65 per share. The company is active on the buyback front as well.

Other Stocks to Consider

Investors interested in the the Zacks Transportation sector may consider Arcbest Corporation (ARCB - Free Report) , Frontline Ltd. (FRO - Free Report) and Spirit Airlines, Inc. (SAVE - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Arcbest, Frontline and Spirit Airlines have gained 12%, 11% and 35%, respectively, in a year’s time.

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