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Here's Why One Should Sell Canadian Pacific Kansas City (CP)
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Canadian Pacific Kansas City Ltd. (CP - Free Report) is currently mired in multiple headwinds, which we believe, have made it an unimpressive investment option.
Let’s delve deeper.
Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for current-quarter earnings has been revised 5.9% downward over the past 60 days. For the current year, the consensus mark has moved 10.4% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Bearish Industry Rank: The industry, to which CP belongs, currently has a Zacks Industry Rank of 210 (of 250 plus groups). Such an unfavorable rank places CP in the bottom 17% of the Zacks industries. Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.
A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Therefore, reckoning the industry’s performance becomes imperative.
Weak Zacks Rank and Style Score: Canadian Pacific Kansas City currently carries a Zacks Rank #4 (Sell). Moreover, CP’s current Momentum Style Score of D shows its short-term unattractiveness.
Other Headwinds: The railroad operator’s total operating expenses have increased 9% year over year in 2021. This was mainly due to the 31% escalation in fuel costs last year. With fuel costs rising as oil prices move north, operating expenses were high (up 15%) in 2022 as well.
Fuel costs jumped 19.4% and 7.3% year over year in first-quarter and second-quarter 2023, respectively. The metric is likely to remain high in third-quarter 2023 as well.
The company’s return-on-equity (ROE) is pegged at 8.9%, below the industry’s level of 24.7%. Lower ROE indicates less efficiency in utilizing the equity capital. The unimpressive reading undercuts CP’s growth potential.
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Here's Why One Should Sell Canadian Pacific Kansas City (CP)
Canadian Pacific Kansas City Ltd. (CP - Free Report) is currently mired in multiple headwinds, which we believe, have made it an unimpressive investment option.
Let’s delve deeper.
Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for current-quarter earnings has been revised 5.9% downward over the past 60 days. For the current year, the consensus mark has moved 10.4% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Bearish Industry Rank: The industry, to which CP belongs, currently has a Zacks Industry Rank of 210 (of 250 plus groups). Such an unfavorable rank places CP in the bottom 17% of the Zacks industries. Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.
A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Therefore, reckoning the industry’s performance becomes imperative.
Weak Zacks Rank and Style Score: Canadian Pacific Kansas City currently carries a Zacks Rank #4 (Sell). Moreover, CP’s current Momentum Style Score of D shows its short-term unattractiveness.
Other Headwinds: The railroad operator’s total operating expenses have increased 9% year over year in 2021. This was mainly due to the 31% escalation in fuel costs last year. With fuel costs rising as oil prices move north, operating expenses were high (up 15%) in 2022 as well.
Fuel costs jumped 19.4% and 7.3% year over year in first-quarter and second-quarter 2023, respectively. The metric is likely to remain high in third-quarter 2023 as well.
The company’s return-on-equity (ROE) is pegged at 8.9%, below the industry’s level of 24.7%. Lower ROE indicates less efficiency in utilizing the equity capital. The unimpressive reading undercuts CP’s growth potential.
Key Picks
Some better-ranked stocks for investors interested in the Zacks Transportation sector are GATX Corp. (GATX - Free Report) and Kirby Corp. (KEX - Free Report) .
(GATX - Free Report) , which presently carries a Zacks Rank #2 (Buy), is aided by gradual improvement in the North American railcar leasing market. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For third-quarter and full-year 2023, GATX’s earnings are estimated to register 36.6% and 14.3% climb, respectively, on a year-over-year basis.
Kirby currently carries a Zacks Rank #2. Strong segmental performances are boosting Kirby’s top line.
For third-quarter and full-year 2023, KEX’s earnings are suggested to record 58.5% and 76.2% improvement, respectively, on a year-over-year basis.