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Canadian Pacific Upgrades Services

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Canadian Pacific Railway Limited (CP - Free Report) recently launched its improved intermodal services connecting Vancouver to Toronto and Chicago. The new services claim to be faster, with lower terminal dwell times and enhanced transition time that entails optimum utilization of assets.  The new intermodal services would follow a new schedule that reduces the travel period by a day for Toronto to Vancouver transcontinental trains on a 2,600-mile track, and by two days for Vancouver to Chicago train service on a 2,200-mile track.

Given the new services, Canadian Pacific aims to provide its customers with superior services and also targets expansion of its footprint in emerging North American and international markets.

Canadian Pacific is focused on upgrading its network capabilities by offering facilities for repair and consolidation that will enable it to operate longer and heavier trains as well as to deliver on-time performance.

Consequently, the company is focused on enhancing its infrastructural capabilities with accelerated capital investments. The company projected long-term investment of nearly C$2.3 billion for 2011–2028 with approximately C$1.0–$1.2 billion slated for this year.  The company expects to upgrade and install new sidetracks in key areas in the current year and increase train length by 11% on transcontinental routes in 2013. To  benefit from the current boom in the energy markets the company is building networks to ship frac sand, pipe and construction material as well as other goods required for oil and gas shale production. This would enable easy access to the main production facilities and provide an opportunity to transport large volumes to key shale regions.

However, we remain concerned about the prevailing economic volatility in the U.S. and abroad that may keep Canadian Pacific’s top-line growth under pressure in the near future. Moreover, the near-term growth for the company is expected to be tempered by lower coal production.

Lower natural gas prices resulting in weak utility coal market have raised significant concerns limiting overall coal shipments, despite strong exports to Asian countries. In addition, weak U.S. grain shipment due to volatility in feed shipments will remain significant headwinds for the company.

Further, competitive threats from major rivals like Canadian National Railway Company (CNI - Free Report) , a highly unionized workforce, and regulatory pressures may limit the upside potential of the stock.

Canadian Pacific currently holds a short-term (1-3 months) Zacks #3 Rank (Hold). For the long term, we have retained a Neutral recommendation on the stock.

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