Market Overview

Canadian Pacific To Chug Along On Cash, Crude Catalysts; Goldman Sachs Upgrades

Canadian Pacific To Chug Along On Cash, Crude Catalysts; Goldman Sachs Upgrades
Related CP
Introduction To Precision Railroading, Part 3: Where Do We Go From Here?
Introduction To Precision Railroading, Part 2: Parsing The Developments In Recent Earnings

Canadian Pacific Railway Limited (USA) (NYSE: CP) shares are undervaluing the existing cash flow base and upside to crude-by-rail through 2020.

The Analyst

Goldman analyst Matt Reustle upgraded Canadian Pacific from Neutral to Buy, with a $213 price target.

The Thesis

Canadian Pacific shares have underperformed its Rail peers by 4 percent and the S&P 500 Index by 9 percent, primarily due to less relative benefits from U.S. tax reform versus U.S. rail peers, Reustle said in a note.

The analyst believes the company is well positioned to exceed volume guidance in 2019, thanks to a supportive macro environment, competitor capacity constraints, and its existing spare capacity.

"We believe CP is well positioned to exceed management's 2018 guidance ("low double-digit EPS growth" versus GS estimate +20% yoy) driven by better-than-expected crude by rail volumes, potential market share gains from CN's network congestion, and late 2018 shareholder returns," Reustle said.

Goldman Sachs sees the company's free cash flow yield as attractive, given it's investing in growth opportunities such as the potential renewal of their aging grain fleet. The firm said shares undervalue growth potential from the capex program as well as upside to future share repurchases in the second half of 2018.

Overall, Goldman Sachs expects the improving operational dynamics throughout 2018 to support investor sentiment, helping to close in on the valuation discount it has with its peers.

The Price Action

Canadian Pacific shares are up about 20 percent over the past year and closed Tuesday at $178.71

Related Links:

Trump's Infrastructure Plan: What You Should Know

'The Best Railroader Of Our Time': The Legacy Of Hunter Harrison

Latest Ratings for CP

Dec 2018Deutsche BankMaintainsBuyBuy
Oct 2018Stifel NicolausUpgradesHoldBuy
Oct 2018Stifel NicolausMaintainsHoldHold

View More Analyst Ratings for CP
View the Latest Analyst Ratings

Posted-In: Goldman Sachs Matt ReustleAnalyst Color Upgrades Top Stories Analyst Ratings Best of Benzinga


Related Articles (CP)

View Comments and Join the Discussion!

Latest Ratings

TVPTImperial CapitalDowngrades15.8
ACORGoldman SachsDowngrades10.0
BCOVB. Riley FBRUpgrades12.0
CAMPFirst AnalysisDowngrades22.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Sell-Side: ADT A Secure Investment

Vetr Crowd Downgrades Wells Fargo