On Friday, Stifel analyst Benjamin Nolan adjusted the price target on shares of Canadian Pacific (NYSE:CP) Kansas City Limited (NYSE:CP), increasing it to $83.00 from $80.00, while reaffirming a Hold rating on the stock. Nolan noted that despite a decrease in carloads by over 3% in the first quarter, revenue ton-miles (RTMs) are projected to rise by nearly 1% year-over-year.
The analyst pointed out that January's weather-related issues significantly impacted carloads, along with a smaller Canadian grain harvest and a drop in coal shipments, which saw RTMs decline by 7.1%.
Conversely, intermodal and automotive segments experienced an estimated 7.4% increase in RTMs. Nolan also mentioned that while port activities in Vancouver and along the West Coast are generally on the upswing, potential challenges may arise from a pending labor strike in May.
Furthermore, growth expectations from Mexico are not meeting initial projections. Despite these factors, Stifel's earnings per share (EPS) estimates for Canadian Pacific Kansas City remain mostly unchanged. Nolan introduced the firm's 2026 EPS estimates, which forecast an 11% increase following an anticipated near 20% rise in 2025. This growth is expected to stem from the continued capitalization on merger synergies.
Nolan concluded by highlighting Canadian Pacific Kansas City's position as a leader in earnings growth over the coming years. However, he also noted that the stock's premium valuation is already reflected in its current trading price, with the shares priced at 27 times the projected 2024 EPS and 23 times the 2025 EPS.
InvestingPro Insights
Following the analysis by Stifel, InvestingPro data further illuminates Canadian Pacific Kansas City Limited’s (NYSE:CP) financial landscape. The company boasts a robust market capitalization of $80.75 billion and has maintained an impressive gross profit margin of 52.47% over the last twelve months as of Q1 2023. This indicates a solid ability to generate earnings relative to its revenue, which is a positive sign for investors looking at the company's profitability.
However, the stock is trading at a high Price-to-Earnings (P/E) ratio of 28.19, suggesting a premium valuation, as noted by Stifel's analyst. This is supported by the adjusted P/E ratio for the last twelve months, which stands at 11.33, still indicating a relatively high valuation compared to near-term earnings growth. Moreover, the company has demonstrated strong performance with a return of 14.37% over the last three months, potentially justifying its higher valuation to some investors.
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