Canadian Pacific (CP) Q2 Earnings: What Awaits The Stock?

Canadian Pacific Railway Limited (NYSE:CP) , the railroad operator based in Calgary, Canada, is set to release its second-quarter 2016 results before the opening bell on Jul 20.

In the first quarter of 2016, the company had posted a negative earnings surprise of 0.55%. Let’s see how events are shaping up for the upcoming announcement.

Our quantitative model also doesn’t point to an earnings beat this time too. Here’s why:

Canadian Pacific Railway doesn’t have the right combination of the two key ingredients – positive Earnings ESP and a Zacks Rank #3 (Hold) or better – for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Canadian Pacific Railway is 0.00%. This is because the Most Accurate estimate of $1.56 is in line with the Zacks Consensus Estimate.

Zacks Rank: Canadian Pacific Railway carries a Zacks Rank #3 but this alone isn’t enough to secure an earnings beat.

Looking at the fundamentals, here are the factors that should be at play:

As the case has been in the past few quarters, headwinds related to coal are expected to hurt Canadian Pacific Railway’s second-quarter results. Since coal is a key revenue-generating commodity for railroad operators, it is only natural that the decline in coal shipments will hurt stocks immensely. With a recent announcement by the company of a 12% year-over-year expected decline in revenues, earnings per share are projected at $2 per share while operating ratio is expected around 62%.

We are impressed by the company’s efforts to reward shareholders through dividend payments/buybacks. Earlier in the year, the company scrapped its plans to buy peer company Norfolk Southern Corp. (NYSE:NSC) . Hunter Harrison, the CEO of Canadian Pacific Railway, had then stated that the company might divert the cash, which was supposed to have been utilized for the Norfolk Southern takeover, toward shareholder friendly measures like a buyback/dividend raise, or both. In keeping with his comments, Canadian Pacific raised its dividend per share by 43% to C$0.50 per share in Apr 2016. The company’s board of directors also sanctioned a buyback plan of up to 6.91 million shares. We expect an update on the issue on the second quarter conference call.

Stocks That Warrant a Look

Here are a few transportation stocks that you may want to consider, as our model shows that these have the right combination for an earnings beat this time around:

United Parcel Service (NYSE:UPS) with an earnings ESP of +2.11% and a Zacks Rank #2 (Buy). The company will report second-quarter earnings on Jul 29.

Expeditors International of Washington (NASDAQ:EXPD) with an earnings ESP of +3.45% and a Zacks Rank #3. The company is slated to report second-quarter earnings on Aug 2.