(The following story by Jonathan Ratner appeared on the National Post website on September 11.)
OTTAWA — A late harvest, the strike at Potash Corp. and mine and port shutdowns in the third quarter are being blamed for lower-than-expected volumes in grain, coal and potash. Management at Canadian Pacific Railway Ltd. said these near-term factors should hurt its results for the quarter as volumes are down 3.1% so far.
This has prompted RBC Capital Markets analyst Walter Spracklin to cut his price target on CP shares by $2 to $66. He noted that while oil has retreated from its July high, average prices for WTI crude in the third quarter will still be up on a year-over-year basis when compared to the average of US$75 per barrel last year.
RBC’s third quarter estimtates also fall by 9% from $1.23 to $1.12, bringing Mr. Spracklin to the low end of the Street. The consensus is $1.17, but the range is $1.11 to $1.24. He also reduced his full-year forecasts for 2008, 2009 and 2010, bringing those close to the low end as well.
“In terms of valuation, we expect CP’s share price to remain rangebound, as we believe the downward EPS revisions will depress forward multiples – at least until the company demonstrates evidence of a turn-around in operating and financial performance,” Mr. Spracklin said in a research note after the RBC Transportation Conference on Wednesday.
He sees few near-term catalysts and maintained a “sector perform” rating on the stock. The analyst prefers Canadian National Railway Co. with an “outperform” rating and $60 price target.