Why Is Canadian Pacific (CP) Down 6.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Canadian Pacific (CP). Shares have lost about 6.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Canadian Pacific due for a breakout? 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.

Canadian Pacific Q4 Earnings & Revenues Beat

Canadian Pacific's fourth-quarter 2019 earnings (excluding 4 cents from non-recurring items) of $3.61 per share (C$4.77) surpassed the Zacks Consensus Estimate of $3.55. Quarterly earnings also increased 5% year over year despite higher operating expenses.

Quarterly revenues of $1,567.6 million (C$2.07 billion) surpassed the Zacks Consensus Estimate of $1,551.5 million. The top line also inched up 3% year over year on rise in freight revenues.

Freight revenues rose 3.1% year over year and contributed 97.8% to the top line. Notably, the company’s freight segment consists of Grain (up 4%), Coal (down 10%), Potash (down 26%), Fertilizers and sulfur (down 11%), Forest products (up 3%), Energy, chemicals and plastics (up 33%), Metals, minerals and consumer products (down 14%), Automotive (up 13%) and Intermodal (down 1%). In the reported quarter, total freight revenues per revenue ton-miles (RTMs) were up 6% year over year. Also, total freight revenues per carload climbed 4% from the year-ago reported figure.

Operating income inched up 1.8% in the quarter under review. Operating expenses climbed 4% year over year. Operating ratio (operating expenses as a percentage of revenues on an adjusted basis) deteriorated to 57% from 56.5% in the prior-year quarter. Notably, lower value of this key metric bodes well. Capital spending during 2019 was C$1.65 billion.

Liquidity

The company exited the fourth quarter with cash and cash equivalents of C$133 million compared with C$61 million at the end of 2018. Long-term debt amounted to C$8.16 billion compared with C$8.19 billion in December 2018.

2020 Outlook

The company anticipates its 2020 adjusted earnings per share to increase in the high single-digit to low double-digit range from C$16.44 reported in 2019. Volume growth (measured by revenue ton miles) is expected in mid-single digits. Capital expenditures are estimated at $1.6 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

At this time, Canadian Pacific has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Canadian Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.