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Here's Why Investors Should Avoid Canadian Pacific KC (CP)
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Canadian Pacific Kansas City’s (CP - Free Report) financial stability is challenged by high operating expenses and low liquidity. High fuel and labor costs exacerbate the strain on the company's bottom line. Also, low liquidity impedes its ability to meet obligations, thereby making it an unattractive choice for investors’ portfolios.
Let’s delve deeper.
Southward Earnings Estimate Revision:The Zacks Consensus Estimate for current-quarter earnings has been revised 1.37% downward over the past 60 days. For the current year, the consensus mark for earnings has moved 0.32% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Weak Zacks Rank: CP currently carries a Zacks Rank #4 (Sell).
Unimpressive Price Performance: Canadian Pacific KC has declined 9.6% over the past 90 days against its industry’s 10.9% fall.
Image Source: Zacks Investment Research
Unimpressive Earnings Surprise History: CP has a discouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate only twice in the trailing four quarters and missing in the remaining two quarters. The average miss is 1.32%.
Other Headwinds: The northward movement in operating expenses is adversely impacting Canadian Pacific KC’sbottom line. This surge in operating expenses is primarily driven by the increase in labor costs and fuel costs.
In the first quarter of 2024, fuel expenses rose by 40% year over year to $458 million. The fuel price per gallon at the end of the quarter was pegged at $3.34 per gallon. Our model predicts a further increase in fuel prices, projecting them to reach $4.15 in the second quarter of 2024. Labor costs, comprising salaries and benefits (accounting for 29% of the total operating expenses), rose by 58% year over year to $690 million in the first quarter of 2024.
CP exited the first quarter of 2024 with $385 million in cash and cash equivalents while carrying a current debt load of $2.9 billion. This discrepancy suggests that the company does not have enough cash to meet its short-term obligations.
Canadian Pacific KC’s current ratio (a measure of liquidity) at the end of the first quarter of 2024 was 0.49. A current ratio of less than 1 indicates that the company is likely to struggle to meet its short-term obligations.
SkyWest currently carries a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 787% for the current year.
SKYW has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 128%. Shares of SkyWest have jumped 103.3% in the past year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 10.3%. Shares of Kirby have climbed 59.9% in the past year.
Image: Bigstock
Here's Why Investors Should Avoid Canadian Pacific KC (CP)
Canadian Pacific Kansas City’s (CP - Free Report) financial stability is challenged by high operating expenses and low liquidity. High fuel and labor costs exacerbate the strain on the company's bottom line. Also, low liquidity impedes its ability to meet obligations, thereby making it an unattractive choice for investors’ portfolios.
Let’s delve deeper.
Southward Earnings Estimate Revision:The Zacks Consensus Estimate for current-quarter earnings has been revised 1.37% downward over the past 60 days. For the current year, the consensus mark for earnings has moved 0.32% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Weak Zacks Rank: CP currently carries a Zacks Rank #4 (Sell).
Unimpressive Price Performance: Canadian Pacific KC has declined 9.6% over the past 90 days against its industry’s 10.9% fall.
Image Source: Zacks Investment Research
Unimpressive Earnings Surprise History: CP has a discouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate only twice in the trailing four quarters and missing in the remaining two quarters. The average miss is 1.32%.
Other Headwinds: The northward movement in operating expenses is adversely impacting Canadian Pacific KC’sbottom line. This surge in operating expenses is primarily driven by the increase in labor costs and fuel costs.
In the first quarter of 2024, fuel expenses rose by 40% year over year to $458 million. The fuel price per gallon at the end of the quarter was pegged at $3.34 per gallon. Our model predicts a further increase in fuel prices, projecting them to reach $4.15 in the second quarter of 2024. Labor costs, comprising salaries and benefits (accounting for 29% of the total operating expenses), rose by 58% year over year to $690 million in the first quarter of 2024.
CP exited the first quarter of 2024 with $385 million in cash and cash equivalents while carrying a current debt load of $2.9 billion. This discrepancy suggests that the company does not have enough cash to meet its short-term obligations.
Canadian Pacific KC’s current ratio (a measure of liquidity) at the end of the first quarter of 2024 was 0.49. A current ratio of less than 1 indicates that the company is likely to struggle to meet its short-term obligations.
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportationsector include SkyWest (SKYW - Free Report) and Kirby Corporation (KEX - Free Report) .
SkyWest currently carries a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 787% for the current year.
SKYW has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 128%. Shares of SkyWest have jumped 103.3% in the past year.
KEX sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.Kirbyhas an expected earnings growth rate of 42.5% for the current year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 10.3%. Shares of Kirby have climbed 59.9% in the past year.