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Canadian Pacific (CP) Up 2.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Canadian Pacific (CP - Free Report) . Shares have added about 2.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Canadian Pacific due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Canadian Pacific Outperforms in Q4

The company’s earnings (excluding 55 cents from non-recurring items) of $3.45 per share (C$4.55) outpaced the Zacks Consensus Estimate of $3.18. Moreover, the bottom line improved 35.8% on a year-over-year basis. The figures were aided by higher revenues.

Quarterly revenues came in at $1,518 million (C$2 billion), beating the Zacks Consensus Estimate of $1,452 million. Also, the top line improved 12.5% on a year-over-year basis. Strong freight revenues boosted the top line.

Freight revenues improved 17.8% year over year and contributed 97.9% to the top line. Notably, the company’s freight segment consists of Grain (up 7%), Coal (up 22%), Potash (up 27%), Fertilizers and sulfur (up 20%), Forest products (up 16%); Energy, chemicals and plastics (up 49%); Metals, minerals and consumer products (up 8%); Automotive (up 7%) as well as Intermodal (up 12%). In the reported quarter, total freight revenue per revenue ton-miles (RTMs) were up 8% year over year. Also, total freight revenue per car load improved 13% from the year-ago quarter’s tally.

Operating income increased 28.2% in the quarter under review. Operating ratio (operating expenses, as a percentage of revenues, on an adjusted basis) improved to 56.5% from 60.2% in the prior-year quarter. Notably, lower value of this key metric bodes well. Operating expenses rose 9.8% year over year.




Liquidity

The company exited 2018 with cash and cash equivalents of C$61 million compared with C$338 million at the end of 2017. Long-term debt amounted to C$8,190 million compared with C$7,413 million in December 2017.

Share Repurchases

As a part of the buyback program announced on Oct 19, 2018, Canadian Pacific repurchased around 2.2 million shares for approximately C$568 million at a weighted average price of C$259.74 per share in the quarter under discussion.




2019 Outlook

For 2019, the company anticipates adjusted earnings per share to grow in double digits. Volume growth, measured in revenue ton miles,  are expected to witness mid-single digit growth.

Capital expenditures are projected around C$1.6 billion. Canadian Pacific is optimistic about growth opportunities in Grain, Potash, Energy, Forest Products, Intermodal as well as Energy, Chemicals and Plastics segments.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Canadian Pacific has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Canadian Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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