Canadian Pacific Analysts Remain Bullish On Railroad's Prospects Despite Q1 Miss

Canadian Pacific Railway Ltd CP reported first-quarter results Tuesday that were short of already low expectations due to a worse-than-feared impact from adverse weather conditions and significant derailment and network disruption in February, according to Raymond James. 

The Analyst

Raymond James’ Steve Hansen maintained a Strong Buy rating on Canadian Pacific Railway with an unchanged CA$340 ($252.25) price target. 

Morgan Stanley’s Ravi Shanker reiterated an Overweight rating and CA$277 price target.

Raymond James: Don't Judge Railroad By Q1 Print  

The railroad reported its first-quarter adjusted EPS at CA$2.79, significantly below the Street estimate of CA$3.01, according to Reuters.

The company’s revenue grew 6 percent to CA$1.77 billion, with growth mixed across segments.

Canadian Pacific said the pricing environment could remain tight into the back half of 2019.

In view of the recent momentum, the railroad expects efficiency gains through the rest of the year, even above the robust performance delivered in the second half of 2018.

Canadian Pacific Railway reiterated its full-year guidance, which calls for double-digit adjusted EPS growth.

With network momentum already in full swing, “it would be a mistake” to base one’s opinion of the company on the poor first-quarter results, Raymond James analyst Hansen said in a Wednesday note.

The problems faced in the first quarter seem to be behind the company, with traffic demand being robust and the company well-positioned for record GTMs/RTMs in April, the analyst said. 

Canadian Pacific Railway’s revenue so far in the second quarter is tracking at 15-percent growth, significantly above expectations, Hansen said. The company has solid operating momentum and is likely to generate strong earnings growth ahead, he said. 

Morgan Stanley Has Positive Outlook On Full-Year Estimates 

Investors may look beyond the weak first-quarter results given the strong outlook for the rest of the year, Morgan Stanley analyst Shanker said in a Wednesday note.

The railroad exhibited greater confidence in its 2019 guidance, while claiming that it is on track for the “strongest April on record," the analyst said. 

Canadian Pacific also expects additional real estate gain upside in the back half of 2019. This should result in sequential growth in the second through fourth quarters, Shanker said. 

Despite the first-quarter miss, the full-year consensus estimates will at least remain stable or possibly be revised higher, according to Morgan Stanley. 

Price Action

Canadian Pacific shares were up 2.92 percent at $225.52 at the time of publication Wednesday. 

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Earnings Scheduled For April 23, 2019

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