(The following story by Scott Deveau appeared on the Globe and Mail website on July 20.)
OTTAWA — RBC Capital Markets analyst Walter Spracklin downgraded Canadian Pacific Railway Ltd. to “sector perform” from “sector outperform” Thursday, saying he prefers the railways rival Canadian National Railway Co. at current trading levels.
CP Rails’ stock shot up by about 15% Wednesday on the Toronto Stock Exchange on rumours of a possible takeover bid by a consortium led by Brookfield Asset Management Co. (BAMa/TSX).
Canada’s No. 2 railway confirmed that Brookfield had approached it in April, but that its offer was rebuffed.
Mr. Spracklin said he valued a leveraged buyout price of $93 a share on CP, but said he was maintaining his 12-month target on the stock at $81.
“Based on the takeout premium that has now been built into the stock, the limited upside to our $93.00 takeout valuation and given the risk that a privatization may not occur – we recommend investors trim positions and redeploy proceeds into [Canadian National Railway],” he wrote in a note.
CP was trading at $87.02 per share on the Toronto Stock Exchange at around 11:25 a.m. ET Thursday, down $1.98.
New Jersey-based Credit Suisse analyst Cameron Jeffreys also downgraded the stock to “neutral” from “outperform.” He has a 12-month target price of US$90 for CP’s NYSE-traded shares. They were trading at around US$83.58 Thursday morning, down US$1.42 on the day.