Analysts Downgrade CP Railway's Earnings Estimates

Higher fuel costs and a weaker-than-expected merchandizing shipments led to downgrades in the earnings estimates of Canadian Pacific Railway Ltd. (CP) Wednesday. CP reported a 29% slide in its first quarter earnings Tuesday, after a marked decrease in lumber and auto shipments and the railway reeled from the soaring cost of fuel.

Management reduced their earnings estimates accordingly, and so too did several analysts Wednesday. “Overall we consider the [first quarter] results to have been disappointing,” said Walter Spracklin, RBC Capital Markets analyst, in a note to clients. He also lowered his earnings per share guidance for the year and next by about 5% to C$4.55 and C$5.27 respectively.

He also cut his target price to C$74 from C$78, but kept his “outperform” rating on the stock.

Fadi Chamoun, UBS analyst, also downgraded his guidance to C$4.51 earnings per share in 2008, from C$4.68, and to C$5.35 a share, down from $5.48, for 2009. He also reduced his price target accordingly to C$78 a share. He did, however, keep his ‘buy’ rating on the stock because of the railway’s strong fundamentals.

He said:

[The] results were indeed disappointing and the slow recovery in fuel costs was greater than anticipated. However, the foundation to our investment case in CP remains intact (i.e. strong pricing, cost controls), while the outlook for bulk demand and contract re-pricing is favorable.

National Bank Financial analyst David Newman also lowered his estimate to C$4.43 in 2008, down from C$4.62, and his 2009 estimate to C$5.20, from C$5.30. He reduced his target to C$64 from C$67, but kept his “sector perform” rating on the stock.