A month has gone by since the last earnings report for Canadian Pacific (CP). Shares have added about 9.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.
In-line Q3 Earnings at Canadian Pacific
Canadian Pacific’s third-quarter 2022 earnings (excluding 3 cents from non-recurring items) of 77 cents (C$1.01) per share matched the Zacks Consensus Estimate. The bottom line increased 10% year over year. Results were aided by higher revenues of $1,772.4 million (C$2,312 million), beating the Zacks Consensus Estimate of $1,689.8 million and increasing 14.91% year over year.
Freight revenues, contributing 97.9% to the top line, rose 19% on a year-over-year basis. CP’s freight segment consists of Grain (up 9%), Coal (down 2%), Potash (up 48%), Forest products (up 18%), Energy, chemicals and plastics (down 10%), Metals, minerals and consumer products (up 22%), Automotive (up 31%) and Intermodal (up 44%). Revenues at the Fertilizers and sulfur sub-segment were up 11% year over year. In the reported quarter, total freight revenues per revenue ton-miles (RTMs) rose 11% year over year. Total freight revenues per carload increased 7% from the year-ago quarter’s reported figure. All percentages are foreign exchange adjusted.
On a reported basis, operating income was up 21%, while total operating expenses increased 18% year over year in the quarter under review. Operating ratio (operating expenses as a percentage of revenues on an adjusted basis) improved to 58.7% in the September quarter from 59.4% in the year-ago quarter. Lower the value of the metric, the better.
Per Keith Creel, CP’s president and Chief Executive Officer, “The third quarter saw strong demand in potash and intermodal that we anticipated, and CP was well-resourced to handle the volume increases we have seen. I’m proud of the results the team delivered this quarter and excited about the opportunities in front of us.”
Canadian Pacific exited the third quarter with cash and cash equivalents of C$138 million compared with C$69 million at the end of 20021. Long-term debt amounted to C$19,339 million compared with C$18,577 million at the end of 2021.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
Currently, Canadian Pacific has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Canadian Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Canadian Pacific is part of the Zacks Transportation - Rail industry. Over the past month, CSX (CSX), a stock from the same industry, has gained 11.3%. The company reported its results for the quarter ended September 2022 more than a month ago.
CSX reported revenues of $3.9 billion in the last reported quarter, representing a year-over-year change of +18.3%. EPS of $0.52 for the same period compares with $0.43 a year ago.
CSX is expected to post earnings of $0.49 per share for the current quarter, representing a year-over-year change of +16.7%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.3%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for CSX. Also, the stock has a VGM Score of C.
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