(The following story by Leonard Zehr appeared on the Globe and Mail website on August 21.)
TORONTO — In the wake of Brookfield Asset Management Inc.’s decision to abandon its pursuit of Canadian Pacific Railway Ltd., UBS has upgraded CPR to “buy” from “neutral,” on the stock’s 20 per cent dip in the past month.
Analyst Fadi Chamoun also cut the stock price target to $85 from $93, basically to where it was before the Brookfield speculation surfaced.
The stock finished Monday at $69.68, compared with a 52-week high of $91 on July 18.
Mr. Chamoun writes that the credit crisis has hurt CPR shares in two ways: “it has deflated the takeout premium that was embedded in the valuation and it has heightened the earnings risk due to potentially slowing North American GDP growth.”
Notwithstanding the GDP impact, he figures ongoing gains in railway efficiency, robust volume growth in the bulk segment and a 10 per cent share repurchase plan will continue to underpin growth in per-share profit, making for a “compelling investment case.”