On Wednesday, Stifel maintained its Hold rating on Canadian Pacific (NYSE:CP) Kansas City Limited (NYSE: CP) stock and increased the shares target to $83 from $82. The firm highlighted the mixed performance in the company's quarterly metrics, noting a decline in carloads but an increase in revenue ton miles (RTMs).
Canadian Pacific Kansas City, also known as CPKC, reported a 4.2% year-over-year decrease in carloads for the second quarter. Despite this, RTMs rose 6% compared to the same period last year.
CPKC's intermodal RTMs diverged from the industry trend with a year-over-year decrease, while their coal segment showed resilience, albeit with a 10% drop in coal RTMs.
The analyst pointed out that CPKC's grain, potash, and fertilizer divisions are anticipated to achieve significant double-digit growth in the second quarter. Additionally, the auto and ECP (Emergency Communication Procedures) segments are expected to perform robustly.
The company's management is optimistic about surpassing last year's revenue synergies of CAD $350 million ahead of schedule, thanks to a broad pipeline of opportunities.
These factors will contribute to substantial top-line growth in the coming years. Stifel forecasts second-quarter revenues of $2.7 billion, an 8% year-over-year increase, and expects this momentum to bring full-year revenue growth to 15%.
For the second quarter, Stifel estimates CPKC will report earnings per share (EPS) of $0.75 USD / $1.01 CAD and projects a full-year EPS of $3.15 USD for 2024. This outlook aligns with the company's guidance for double-digit core-adjusted EPS growth.
Additionally, the firm forecasts a second-quarter operating ratio (OR) of 61.5%, representing a sequential improvement of 255 basis points and a year-over-year improvement of 313 basis points.
Despite the positive developments and potential for significant earnings growth in the ensuing years, Stifel considers CPKC's shares overvalued compared to its peers. The shares are trading at 27 times Stifel's 2024 EPS estimate. The price target of $83 is based on a 22 times multiple of Stifel's 2025 EPS estimate of $3.76.
InvestingPro Insights
As Canadian Pacific Kansas City Limited (NYSE: CP) navigates through its mixed quarterly performance, real-time data from InvestingPro provides a sharper financial perspective on the company. The market capitalization of CPKC stands at a robust $78.65 billion, reflecting the scale of its operations. With a P/E ratio of 27.57, the company is trading at a premium, which aligns with Stifel's assessment of the stock being overvalued relative to near-term earnings growth. However, the adjusted P/E ratio for the last twelve months as of Q1 2024 is significantly lower at 11.04, suggesting a more favorable earnings perspective when looking at a slightly longer timeframe.
InvestingPro Tips highlight the company's impressive gross profit margin of 51.89%, which underscores its ability to maintain profitability despite operational challenges. Additionally, CPKC has proven its financial resilience by maintaining dividend payments for an impressive 24 consecutive years, a testament to its commitment to shareholder returns. With analysts revising their earnings upwards for the upcoming period and predicting the company will be profitable this year, there is an optimistic outlook for the company's financial performance.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available, providing a comprehensive understanding of CPKC's financial health and future prospects. To access these insights and more, visit https://www.investing.com/pro/CP and use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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