CP Rail: Analysts Expect a Strong Showing in 2008

After a “good” finish to 2007, Canadian Pacific Railway Ltd. (CP) appears poised for a strong year ahead, according to UBS analyst Fadi Chamoun.

The country’s second largest railway released a solid fourth quarter result Tuesday, considering foreign exchange headwinds, high fuel prices, and lower volumes in its U.S. operations. Looking forward, the railway said it expects its earnings to grow in the range of 9% to 12% this year, a goal that is likely achievable given the current trends in the industry, Mr. Chamoun said.

In a note to clients on Wednesday he said:

Railroad volumes have been in a recession since late 2006 due primarily to weak paper, housing and automotive volumes. We believe that in the absence of further deterioration of the macro environment and potentially slowing consumer spending, freight volumes should recover over the course of 2008 and result in a re-acceleration in earnings growth.

He maintained his C$80 price target, and his earnings guidance of 10.4% in 2008, or C$4.78 a share. He also reiterated his 2009 estimate of C$5.52 a share, and introduced a new earnings estimate for 2010 of C$6.23 a share.

However, RBC Capital Market’s analyst Walter Spracklin cautioned that the railway’s failure to clarify whether it would go ahead with its expansion into the Powder River Basin after integrating Dakota, Minnesota, & Eastern into it operations has put a ‘ceiling’ on its valuation multiple. As such, Mr. Spracklin lowered his price target from C$83 to C$78.

Comments

[onelittlesa...:]

CP profits trump environmental concerns. CP Rail is destroying irreplaceable habitat. CP is enjoying record profits while incompetent employees show total contempt for future salmon resources and clean water concerns for all of Canada and the USA. See the shocking YOUTUBE series CP RAIL KILLER CULVERT.

2008 Mar 10 06:17 PM