CP Rail Loses Arbitration Hearing, Revenues Will Take a Hit - UBS

Teck Resources Ltd. (TCK) came out as the winner of its arbitration hearing with Canadian Pacific Railway (CP) Monday announcing it will save about C$70-million in 2009, but the drop in revenue has UBS taking a second look at CP Rail's earnings potential.

Fadi Chamoun, UBS analyst, said in a note Monday:

The recently announced decision reduces CP’s leverage to a potentially favourable outlook for coal. We are revisiting our earnings and price target pending further information.

Mr. Chamoun estimates revenue will take a hit of between C$90-million and C$107-million (-38 cents to -45 cents per share) as CP's coal rate could drop as much as C$6.50 per tonne.

UBS maintains its Buy rating and C$50 price target, but that may change depending on whether or not CP can reduce costs in response to the ruling.