Does Canadian Pacific Railway Limited’s Record Q1 Earnings Signal a Buying Opportunity?
Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP), one of the largest rail network operators in North America, announced record first-quarter earnings on the morning of April 21 that also surpassed analysts’ expectations, but its stock has responded by making a slight move to the downside. Let’s take a closer look at the quarterly results to determine if we should consider using this weakness as a long-term buying opportunity, or a warning sign.
Breaking down the record-setting results
Here’s a breakdown of Canadian Pacific’s first-quarter earnings results compared to what analysts had anticipated and its results in the same period a year ago.
|Adjusted Earnings Per Share||$2.26||$2.14||$1.42|
|Revenue||$1.67 billion||$1.65 billion||$1.51 billion|
Source: Financial Times
Canadian Pacific’s adjusted earnings per share increased 59.2% and its revenue increased 10.3% compared with the first quarter of fiscal 2014. The company’s immense earnings-per-share growth can be attributed to its adjusted net income increasing 49.4% to an all-time quarterly high of $375 million. It was helped by its operating ratio improving 880 basis points to a first-quarter record 63.2%. Its double-digit revenue growth can be attributed its total number of carloads increasing 3.9% to 642,000 and its revenue per carload increasing 6.5% to $2,541, which led to total freight revenues increasing 10.6% to $1.63 billion.
Here’s a quick breakdown of six other notable statistics from the report compared to the year-ago period:
- Freight gross ton-miles increased 5% to 65.19 million
- Revenue ton-miles increased 3.9% to 36.06 million
- Operating income increased 44.7% to $612 million
- Cash provided by operating activities increased 93.4% to $555 million
- Free cash flow increased 1,980% to $312 million
- Weighted average number of diluted shares outstanding decreased 6% to 166.3 million
Is today the day to buy shares of Canadian Pacific?
I do not think the post-earnings drop in Canadian Pacific’s stock is warranted and actually represents a very attractive long-term buying opportunity. I think this because the stock trades at very inexpensive valuations, including just 21.6 times fiscal 2015’s estimated earnings per share of $10.92 and only 18.4 times fiscal 2016’s estimated earnings per share of $12.79, both of which are very inexpensive compared to its five-year average price-to-earnings multiple of 25.2.
With all of the information provided above in mind, I think Canadian Pacific Railway represents one of the best long-term investment opportunities in the market today. Foolish investors should take a closer look and strongly consider using today’s weakness as a buying opportunity.
Want two more of our TOP energy stock picks?
If so, check out our special FREE report "2 Canadian Energy Stocks on the Cusp of a Powerful Long-Term Trend." In this report, you'll find that Canada is rich in other energy sources that are poised to take off. Click here now to get the full story.
NEW! 1 TOP STOCK FOR 2016 AND BEYOND...
Let’s not beat around the bush – energy companies performed miserably in 2015. Yet, even though the carnage was widespread, not all energy-related businesses were equally affected.
We've identified an energy company we think offers one of the best growth opportunities around. While this company is largely tied to the production of natural gas, it doesn't actually produce the gas. Instead, it provides the equipment required to get natural gas from the ground to the end user. With diversified operations around the globe, we think it's a rare find in the industry.
We like it so much, we’ve named it as 1 Top Stock for 2016 and Beyond. To find out why, simply enter your email address below to claim your FREE copy of this brand new report, "1 Top Stock for 2016 and Beyond"!
Fool contributor Joseph Solitro has no position in any stocks mentioned.
Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP), one of the largest rail network operators in North America, announced record first-quarter earnings on the morning of April 21 that also surpassed analysts? expectations, but its stock has responded by making a slight move to the downside. Let?s take a closer look at the quarterly results to determine if we should consider using this weakness as a long-term buying opportunity, or a warning sign.
Breaking down the record-setting results
Here?s a breakdown of Canadian Pacific?s first-quarter earnings results compared to what analysts had anticipated and its results in the same period a year ago.