Will Canadian Pacific Railway (CP) Miss Earnings Estimates? - Analyst Blog

Canadian Pacific Railway Limited CP is slated to report its first-quarter 2014 financial results before the opening bell on April 22, 2014.

In the last quarter, the company delivered a 6.5% negative earnings surprise. Let's see how things are shaping up for this announcement.

Factors to be Considered this Quarter

We remain encouraged by Canadian Pacific's healthy performance backed by volume addition, safety and efficiency along with cost metrics. Additionally, pricing above inflationary levels (3–4% year-over-year growth) is expected to aid the company's projected revenue growth of 6–7% in 2014. Further, Canadian Pacific remains committed to generating an operating ratio in the low 70s. The company also targets an operating ratio of 65% in 2014, way ahead of its initial target of 2016.

On the downside, Canadian Pacific's freight volumes and revenues are largely dependent on the North American and global economies, which are gradually recovering. Adverse North American and global economic conditions may have a negative impact on the volume of rail shipments and revenues, resulting in a downside risk for the company. Moreover, the near-term growth for the company is expected to be tempered by lower coal production in the domestic market and reduced international thermal prices.

Earnings Whispers

Our proven model does not conclusively show that Canadian Pacific is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Negative Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -7.00% for Canadian Pacific as the Most Accurate estimate stands at $1.32 while the Zacks Consensus Estimate is higher at $1.42.

Zacks Rank #3 (Hold): Canadian Pacific's Zacks Rank #3 decreases the predictive power of ESP.

We caution investors against the stock going into the earnings announcement, as a Zacks Earnings ESP of -7.00% combined with a Zacks Rank #3 lowers the possibility of an earnings surprise.

Other Stocks to Consider

Here are some companies to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.

Arkansas Best Corporation ABFS has Earnings ESP of +20.0% and carries a Zacks Rank #3.

Allegiant Travel Company ALGT has Earnings ESP of +12.10% and carries a Zacks Rank #2 (Buy).

Alaska Air Group, Inc. ALK has Earnings ESP of +9.7% and sports a Zacks Rank #1 (Strong Buy).