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Why Is Canadian Pacific (CP) Up 8.5% Since Last Earnings Report?
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A month has gone by since the last earnings report for Canadian Pacific (CP - Free Report) . Shares have added about 8.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Canadian Pacific due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Q2 Earnings Beat at Canadian Pacific
Canadian Pacific's second-quarter 2020 earnings (excluding 42 cents from non-recurring items) of $2.94 (C$4.66) per share surpassed the Zacks Consensus Estimate of $2.75. However, quarterly earnings declined 8.4% year over year. Quarterly revenues of $1,292.8 million (C$1,792) missed the Zacks Consensus Estimate of $1,299.9 million. The top line also fell 12.5% on a year-over-year basis due to drop in freight revenues.
Freight revenues, contributing 97.8% of the top line, fell 9.3% on a year-over-year basis. Notably, the company’s freight segment consists of Grain (up 5.7%), Coal (down 24.3%), Potash (up 7.4%), Fertilizers and sulphur (up 22.2%), Forest products (up 3.8%), Energy, chemicals and plastics (down 1.4%), Metals, minerals and consumer products (down 35.1%), Automotive (down 67.3%) and Intermodal (down 10.1%). In the reported quarter, total freight revenues per revenue ton-miles (RTMs) were up 1% year over year. Also, total freight revenues per carload climbed 3.1% from the year-ago quarter’s reported figure.
Operating income declined 6.3% in the quarter under review. Operating expenses fell 11.5% year over year. Consequently, operating ratio (operating expenses as a percentage of revenues on an adjusted basis) improved to 57% in the second quarter from 58.4% in the year-ago quarter. Notably, lower value of this key metric bodes well. Increased efficiencies owing to the precision scheduled railroading model adopted by Canadian Pacific drove the metric.
Liquidity
The company exited the second quarter with cash and cash equivalents of C$277 million compared with C$133 million at the end of the year-ago quarter. Long-term debt amounted to C$9,457 million compared with C$8,158 million at the end of December 2019.
2020 Outlook
The company now anticipates adjusted earnings per share to grow on a year-over-year basis relative to 2019’s adjusted EPS of $16.44. However, capital expenditures are still anticipated to be C$1.6 billion in 2020. Moreover, revenue ton miles are estimated to decline in mid-single digit. Effective tax rate is anticipated to be approximately at 24.8% compared to 25% previously.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
Currently, Canadian Pacific has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Canadian Pacific has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Why Is Canadian Pacific (CP) Up 8.5% Since Last Earnings Report?
A month has gone by since the last earnings report for Canadian Pacific (CP - Free Report) . Shares have added about 8.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Canadian Pacific due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Q2 Earnings Beat at Canadian Pacific
Canadian Pacific's second-quarter 2020 earnings (excluding 42 cents from non-recurring items) of $2.94 (C$4.66) per share surpassed the Zacks Consensus Estimate of $2.75. However, quarterly earnings declined 8.4% year over year. Quarterly revenues of $1,292.8 million (C$1,792) missed the Zacks Consensus Estimate of $1,299.9 million. The top line also fell 12.5% on a year-over-year basis due to drop in freight revenues.
Freight revenues, contributing 97.8% of the top line, fell 9.3% on a year-over-year basis. Notably, the company’s freight segment consists of Grain (up 5.7%), Coal (down 24.3%), Potash (up 7.4%), Fertilizers and sulphur (up 22.2%), Forest products (up 3.8%), Energy, chemicals and plastics (down 1.4%), Metals, minerals and consumer products (down 35.1%), Automotive (down 67.3%) and Intermodal (down 10.1%). In the reported quarter, total freight revenues per revenue ton-miles (RTMs) were up 1% year over year. Also, total freight revenues per carload climbed 3.1% from the year-ago quarter’s reported figure.
Operating income declined 6.3% in the quarter under review. Operating expenses fell 11.5% year over year. Consequently, operating ratio (operating expenses as a percentage of revenues on an adjusted basis) improved to 57% in the second quarter from 58.4% in the year-ago quarter. Notably, lower value of this key metric bodes well. Increased efficiencies owing to the precision scheduled railroading model adopted by Canadian Pacific drove the metric.
Liquidity
The company exited the second quarter with cash and cash equivalents of C$277 million compared with C$133 million at the end of the year-ago quarter. Long-term debt amounted to C$9,457 million compared with C$8,158 million at the end of December 2019.
2020 Outlook
The company now anticipates adjusted earnings per share to grow on a year-over-year basis relative to 2019’s adjusted EPS of $16.44. However, capital expenditures are still anticipated to be C$1.6 billion in 2020. Moreover, revenue ton miles are estimated to decline in mid-single digit. Effective tax rate is anticipated to be approximately at 24.8% compared to 25% previously.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
Currently, Canadian Pacific has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Canadian Pacific has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.