RBC Analyst: Expect Disappointing Q2 Earnings from CP Rail

Shares of Canadian Pacific Railway Ltd. (CP) are expected to face near-term pressure on second quarter earnings that are forecast to be below consensus estimates, and a stock price that is near the high end of its historic range and offers limited upside as a result, according to RBC Capital Markets analyst Walter Spracklin.

He downgraded the railway to “sector perform” from “outperform” and cut his price target by C$1 to C$73. This is roughly where the shares are trading.

Mr. Spracklin’s second quarter earnings forecasts for the Canadian railroads are being reduced as a result of persistently weak volumes and higher fuel costs. He expected carload volumes would grow 2.5%, but they are trending down 1.1%, the analyst told clients. The company’s fuel-related surcharges, meanwhile, have not kept pace with the climbing price of oil, which he expects will also have a negative impact on the second quarter.

Mr. Spracklin’s new earnings per share estimate is C$1.05, down from C$1.19, while the consensus is C$1.14. RBC’s WTI crude oil assumptions for the rest of 2008 and 2009 move up to $110 from $98.