(The following story appeared on the National Post website on June 2.)
OTTAWA — Shares of Canadian Pacific Railway Ltd. are expected to face near-term pressure on second quarter earnings that are forecast to be below consensus estimates and a stock price that is near the high end of its historic range and offers limited upside as a result, according to RBC Capital Markets analyst Walter Spracklin.
He downgraded the railway to “sector perform” from “outperform” and cut his price target by a dollar to $73. This is roughly where the shares are trading.
Mr. Spracklin’s second quarter earnings forecasts for the Canadian railroads are being reduced as a result of persistently weak volumes and higher fuel costs. He expected carload volumes would grow 2.5%, but they are trending down 1.1%, the analyst told clients. The company’s fuel-related surcharges, meanwhile, have not kept pace with the climbing price of oil, which he expects will also have a negative impact on the second quarter.
Mr. Spracklin’s new earnings per share estimate is $1.05, down from $1.19, while the consensus is $1.14. RBC’s WTI crude oil assumptions for the rest of 2008 and 2009 move up to US$110 from US$98.