On Wednesday, Wolfe Research analyst Scott Group adjusted the rating for Canadian Pacific (NYSE:CP) Kansas City Limited (NYSE: CP), moving it from Peerperform to Outperform with a price target (PT) set at $86.00. The upgrade reflects a change in perspective following Canadian Pacific's acquisition of Kansas City Southern (NYSE:KSU), a deal that was announced in March 2021.
Group highlighted that since the announcement of the acquisition, CP's stock performance has remained relatively flat over the past approximately three and a half years. This performance has been slightly behind its industry peers and has notably underperformed compared to the S&P 500 index. However, the analyst noted that Canadian Pacific has successfully navigated through the lengthy approval process with the Surface Transportation Board (STB), managed the initial dilution from the transaction, and dealt with a generally challenging environment for the freight and rail sectors.
The analyst pointed to the compression of CP's large valuation premium and anticipates that the company will experience accelerated earnings per share (EPS) growth in the coming years. Group's outlook suggests a more favorable position for Canadian Pacific's stock moving forward, despite the ongoing near-term uncertainties, which include potential tariffs that could impact Canada and Mexico.
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