Should You Be a Long-Term Buyer of Canadian Pacific Railway Limited Today?

Canadian Pacific Railway Limited’s (TSX:CP)(NYSE:CP) reported fourth-quarter earnings today and its stock has reacted by rising over 1%. Should you be a long-term buyer?

| More on:
The Motley Fool

Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP), one of the largest rail network operators in North America, announced record fourth-quarter earnings this morning and its stock has responded by rising over 1%. Let’s take a closer look at the results to determine if we should consider initiating long-term positions today or wait for a better entry point in the days ahead instead.

The record-setting results

Here’s a breakdown of Canadian Pacific’s fourth-quarter earnings compared to what analysts had expected and its results in the same period a year ago.

Metric Reported Expected Year-Ago
Earnings Per Share $2.68 $2.54 $1.91
Revenue $1.76 billion $1.74 billion $1.61 billion

Source: Financial Times

Canadian Pacific’s adjusted earnings per share increased 40.3% and its revenue increased 9.5% compared to the fourth quarter of fiscal 2013. These results were driven by adjusted net income increasing 36.1% to $460 million and freight revenues increasing 9.5% to $1.72 billion. The company also noted that it transported 690,000 carloads during the quarter, an increase of 0.6% from the year-ago period, and its revenue per carload increased 8.6% to $2,489.

Here’s a summary of six other important statistics from the report:

  • Adjusted operating profit increased 29.4% to $708 million.
  • Adjusted operating ratio improved 610 basis points to 59.8%, the lowest quarterly ratio in the company’s history.
  • Generated $115 million of free cash flow.
  • Repurchase 5,205,700 shares of its common stock for approximately $1.1 billion.
  • Paid out a quarterly dividend of $0.35 per share for a total cost of approximately $60 million.
  • Ended the quarter with $226 million in cash and cash equivalents.

Lastly, Canadian Pacific provided its outlook on fiscal 2015, calling for the following performance:

  • Adjusted earnings per share growth of more than 25% from the $8.50 earned in fiscal 2014.
  • Revenue growth in the range of 7%-8%.
  • Operating ratio below 62%.

Should you buy shares of Canadian Pacific today?

Canadian Pacific owns one of the largest rail networks in North America, and increased demand for its services led it to a record-setting financial performance in the fourth quarter. The company reported year-over-year growth of more than 9% in earnings per share, revenue, and operating profit, while reporting a record operating ratio, generating $115 million of free cash flow, and providing solid outlook on fiscal 2015, and its stock has responded accordingly by rising more than 1%.

Even after the slight post-earnings pop in Canadian Pacific’s stock, I think it represents a great long-term investment opportunity, because it trades at favorable forward valuations, including 27 times fiscal 2014’s earnings per share of $8.50 and just 20.9 times analysts’ estimated earnings per share of $10.98 for fiscal 2015, both of which are very inexpensive compared to its five-year average price-to-earnings multiple of 28.3.

With all of this information in mind, I think Canadian Pacific Railway represents one of the best long-term investment opportunities in the market today, so Foolish investors should take a closer look and strongly consider initiating a position.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Investing

Arrowings ascending on a chalkboard
Tech Stocks

Why I Think Nuvei Stock Has Market-Beating Potential

Given its growth initiatives, expanding addressable market, and attractive valuation, I believe Nuvei has the potential to outperform the broader…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Need Passive Income? Turn $5,000 Into $23.85 Every Month

If you're looking for passive income that comes in like a paycheque, this dividend stock provides that to you along…

Read more »

A worker drinks out of a mug in an office.
Metals and Mining Stocks

5 Things to Know About Nutrien Stock in December 2022

Trading at heavily depressed multiples, Nutrien stock is a great opportunity, as it delivers solid financial results and an optimistic…

Read more »

A shopper makes purchases from an online store.
Tech Stocks

Shopify Stock Rose 15% in November: Is it a Buy Today?

Shopify (TSX:SHOP) stock rallied 15% this month but is still down 69% year to date, so should investors worry that…

Read more »

Man holding magnifying glass over a document
Investing

The 3 Most Oversold TSX Stocks to Watch Before 2023

Many oversold stocks are merely victims of market circumstances and potentially profitable bargains when they seem downtrodden.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

A TFSA Contribution Room of $88,000 and 1 Dividend Aristocrat Can Make You $172,330 Richer

A high-yield Dividend Aristocrat in the energy sector is a suitable holding for Canadians with $88,000 available contribution rooms in…

Read more »

Upwards momentum
Investing

Year-End Sales Tracker: 3 Growth Stocks Going for Value Prices

Growth stocks like Aritzia (TSX:ATZ) are on discount.

Read more »

Dollar symbol and Canadian flag on keyboard
Investing

2 Canadian Stocks I’ll Be Buying Hand Over Fist in 2023

Alimentation Couche-Tard (TSX:ATD) and another top growth stock could increase dividends in 2023.

Read more »