Canadian Pacific Is The Only Railroad Stock Worth Owning: Here's The Logic

Avondale Partners said the strong results of Canadian Pacific Railway Limited (USA) CP in an challenging industry proved once again why it is the only railroad equity the brokerage is recommending.

Analyst Donald Broughton maintains his Market Outperform rating on the stock, intact with a price target of $150, despite rating the industry Market Underweight due to significant headwinds on volume and yield.

CP adjusted EPS of C$2.50 rose 10.6 percent from last year and beat consensus estimate of C$2.41 and Avondale estimate of C$2.18. However, total revenue fell 4.4 percent to C$1.6 billion due to challenging macro conditions for railroads.

The analyst hailed the company's operating ratio, as it recorded its lowest ever first quarter operating ratio of 58.9 percent.

In a press release, Hunter Harrison, Canadian Pacific's CEO said, "The precision railroading model works in all economic environments. Despite weakness in the economy and volume headwinds, we focused on what we can control – our costs and our commitment to providing reliable service – and delivered a record performance."

Related Link: CP Reports Record Q1 Results

The analyst said precision railroading continues to prove itself as average terminal dwell time dropped 22.5 percent, and average network speed increased 20.5 percent.

Canadian Pacific's board also authorized the repurchase of up to 6.91 million of its common shares and raised quarterly dividend to $0.50 per share from $0.35 payable on July 25, 2016, to shareholders of record on June 24, 2016.