Canadian Pacific One Of The 'Best-Managed,' 'Most Efficient' Railroads Globally, Stifel Says

Canadian Pacific Railway, Ltd CP gave Stifel reasons to turn bullish on the stock.

The Analyst

Stifel’s Michael Baudendistel upgraded Canadian Pacific Railway from Hold to Buy with a price target lowered from $247 to $244.

The Thesis

Stifel, which released a note on October 7th that maintained a Hold rating on Canadian Pacific, upgraded the stock Friday.

“We did not fully appreciate the opportunities and strategic initiatives the company has in its pipeline," Baudendistel said in the note. (See his track record here.) 

These include the potential to expand capacity in key locations near terminals, the benefits of investment in new equipment such as high-capacity grain cars and recent operational improvements to intermodal operations, he said.

One of Stifel's takeaways from the rail line's investor day is that Canadian Pacific has high growth potential, even in the near term.

“Management gave us various instances of unused land in strategic areas, new investments in equipment and available potential customers,” the analyst said.

CP has gone from being "arguably the least efficient Class I" to one of the best-run railroads, Baudendistel said.

The railroad's Intermodal Demand Management plan is meant to improve its intermodal franchise. The company changed its day-of-the-week pricing model to a more robust and dynamic pricing system with the use of algorithms, the analyst said.

“By August 2018, the variability in train length was reduced to 500 feet from 6,000 feet a year before. This project has generated CAD 50 million of low cost incremental capacity and resulted in lower train starts and better use of existing crews and locomotives."

Canadian Pacific is "one of the best-managed and most efficient railroads in the world," and has posted strong volumes recently as it gains market share, according to Stifel.

Price Action

Canadian Pacific shares were up 1.26 percent at $205.97 at the time of publication Friday.

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