Canadian Pacific Kansas City Railway (TSX:CP) is up 10% in the past month. Investors who missed the bounce are wondering if CP stock is still undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio.
CP Stock Price
CP trades near $112 per share at the time of writing. The stock has endured multiple 10% moves over the past year, trading in a range of about $95 to $119.
A combination of factors has been at play in the past 12 months. Labour strikes at ports and rail operators in Canada last year disrupted services and forced some customers to find alternative options to move their cargo. In 2025, the story is mostly about investor expectations on the economic impact of tariffs on the U.S., Canadian, and Mexican economies.
Tariffs on all goods entering the United States risk driving the American economy and the economies of its neighbours into a recession. An extended and deep economic downturn would reduce demand for CPKC’s services.
However, a quick resolution to the trade negotiations would potentially provide a nice tailwind for the stock. News clips that are either positive or negative are causing much of the volatility in the shares this year as investors try to figure out when the trade uncertainty will be put to bed.
CPKC is based in Calgary but operates about 20,000 route miles of tracks that connect ports on the Pacific and Atlantic coasts in Canada to the Gulf Coast in the United States and Lazaro Cadenas in Mexico. The company moves automobiles, car parts, coal, grain, fertilizer, forestry products, crude oil, metals, and finished goods from farmers, manufacturers, and miners to domestic or international clients or points of transfer.
Earnings
CPKC reported solid first-quarter (Q1) 2025 results on April 30. Revenue came in at $3.8 billion compared to $3.5 billion in the same quarter last year. Efficiency improved, with the operating ratio falling to 65.3 compared to 67.4 in Q1 2024. Core adjusted diluted earnings per share (EPS) rose 14% to $1.06 for the first three months of the year. Volumes along the rail network increased by 4%.
Uncertainty remains on tariff policy, but CPKC still expects to deliver a 10% to 14% gain in core adjusted diluted EPS in 2025 over last year. That being said, the guidance is lower than the 12% to 18% gain previously provided.
Lower oil prices are helping the railway. Fuel is a major cost for railways as they haul their cargo across the continent. The Q1 numbers might also reflect a rush by businesses to import excess products, supplies, and raw materials ahead of the anticipated tariffs. Investors will need to watch the Q2 and Q3 results to get a better sense of how the tariffs are impacting demand for rail services.
Wildfires in Canada could also be a factor this summer. Dry conditions across Western Canada have already led to an early and active wildfire season. A hot and dry summer could lead to fires that disrupt operations this year.
Opportunity
CP’s US$31 billion acquisition of Kansas City Railway in late 2021 created North America’s only railway that connects Canada, the United States, and Mexico. New trade deals are expected between the U.S. and its two neighbours. There could be some uncertainty throughout the process, but deals will get done, and the long-term outlook for CPKC should be positive as the three economies expand.
The bottom line
CP should be a solid pick at this level for buy-and-hold investors. Additional weakness would be viewed as an opportunity to add to the position.
