Canadian Pacific Kansas City (TSX: CP) saw shares climb back from its October lows on earnings that promised to only get better in the next year. But analysts are identifying issues that also need to be on the mind of investors. So let’s get into what happened, and whether it’s time for investors to get in on CP stock.
First, earnings
CP reported strong earnings for its last quarter, seeing revenue rise 4% to $3.78 billion from $3.64 billion the year before. This came as the company continues to merge the pair after the incredible acquisition was approved.
Stresses continue to be placed on CP stock after the largest merger in more than 20 years in North America. That being said, the full potential of the company synergies haven’t been fully realized, according to management.
So while net income fell 20% year over year to $1 billion, there should be more to come over the next year. In fact, CP stock reported that it forecasts double digit diluted earnings per share growth from the $3.84 achieved in 2023. It also plans to spend $2.8 billion in infrastructure upgrades throughout 2024.
Mexico, maybe?
Chief Executive Officer Keith Creel said to analysts during the earnings report that issues around its passenger train in Mexico and the country’s president are still up in the air. However, he does not expect there to be any issues. Creel met twice with the president, reaching a deal to study passenger trains in Mexico.
This would be enormous for the company, and Mexico as well, marking the only train that would run from Canada down to Mexico. The thing is, the president is giving “preference” to public passenger rail services, while “freight rail transport will be respected.” And this raises the potential for delays.
So it’s still unclear how this new Mexico rail line will work, but it’s clear that both CP and the Mexican government want it. Yet they both want it on their own terms.
What about now?
For now, investors can look forward to a strong 2024. There are likely to be strong synergy opportunities and as mentioned, this alone should see growth in earnings per share that could double. Furthermore, the company believes there will be stronger macroeconomic conditions, with more grain output for the remaining year.
Even so, pressure remains from interest rates and inflation, as with every other company out there right now. But at the very least, it’s looking to ramp-up its activity in the Port of Vancouver after a strike by dockworkers back in July.
So if you’re an investor looking ahead, CP stock looks like a great choice. The only issue is that shares are now at 52-week highs, so they aren’t cheap. But if you’re looking to the future, this stock certainly has the potential for greatness. Meanwhile, shares are still rising, with CP stock up 15% since bottoming out this year. Those willing to wait then could be at the beginning of something great.
