Canadian Pacific Kansas City (TSX:CP) continues to climb for investors. After passing the $100-per-share mark, there was a bit of a lull, but not by much. And with the market finally improving, investors may be wondering: Is CP stock now on its way to $150 per share?
What happened?
CP stock has seen a massive increase in its share price since the merger between CP and Kansas City Southern became official. It took years of back and forth not just between these two companies but between fellow Canadian rail line Canadian National Railway.
Even though CNR stock outbid CP stock, in the end, it came down to the lines themselves. CNR stock seemed to have several lines similar to those covered by Kansas City. Therefore, it made the most sense to go with CP stock. These, along with several other factors, are what caused the Surface Transportation Board in the United States to side with CP stock.
The news was met with applause by long-term investors and boos from short-term ones. The cost is enormous — around US$31 billion for the company. Not great news if you’re hoping for near-term growth in the company, as well as a strong dividend. This dividend was cut by the company after the merger was announced.
So, why the growth?
The new CP stock offers enormous opportunities for long-term investors. CP stock is now the only railway to run from Canada down to Mexico, all across North America. Besides the distance, the company also brought in several new rail lines that cover even more ground.
These new lines add further revenue in terms of oil, gas, grain, vehicles, and more. At a time when supply-chain disruptions remain an issue, CP stock is now creating a way to see products shipped across three countries with ease.
So, CP stock has more growth, a strong balance sheet, and enormous long-term potential, as the company grows even further. Yet here’s the thing: the merger has only just begun.
Shares climb, but the best is yet to come
CP stock may have already completed the merger, yet the company is still in the early phases of the acquisition. There is bound to be a learning curve, as well as hiccoughs along the way, as the two companies join together. Yet even as these are smoothed over, the stock has risen 10% in the last year alone. What’s more, in the last year, it’s finally surpassed the $100 mark and isn’t looking back.
The potential price target set by analysts currently sits at $120. However, given the rapid growth we’ve seen even during this economic downturn, I wouldn’t be surprised if we saw $150 — perhaps not by the end of 2023, but certainly in 2024.
So, even though the dividend has been cut, that likely won’t be forever. What’s more, it’s still trading at a reasonable 23.36 times earnings. This is why I would still consider CP stock an excellent option for your long-term portfolio.
