(The following story by Scott Deveau appeared on the Financial Post website on July 28, 2009.)
OTTAWA — Slower freight volumes are expected to weigh heavily on the earnings of Canadian Pacific Railway Ltd. when it releases its second quarter results Thursday.
Despite some evidence that declines in shipments have stabilized in recent weeks, the Calgary-based railway’s carloads fell by more than 24% during the quarter. The Street is anticipating earnings per share of 37¢ for the period ending June 30, compared to 97¢ a share last year.
The situation has been exacerbated by an unfavorable ruling against the railway earlier this month in its rate dispute with Teck Coal, which will be applied retroactively to the 2009 coal year, and is expected to drag on CP’s earnings by between 40¢ and 45¢ a share for the year as a whole, according to David Newman, National Bank Financial analyst.
Mr. Newman said he anticipates earnings of 34¢ a share for the second quarter at CP, buoyed a bit by the cost-cutting measures implemented over the past few quarters. He has a ‘sector perform’ rating on the stock and a $40 price target on it predicated on an economic recovery in 2010.
Benoit Poirier, Desjardins Securities analyst, who is anticipating earnings per share of 42¢ for the second quarter at CP, said he is still cautious about drawing optimism from the weekly volume data, calling it “highly volatile” metric.
He has a ‘hold’ rating on the stock, and says he prefers Canadian National Railway Co. to CP due to its stronger operating and financial metrics.
“We continue to like the fundamentals of the Canadian railroads and believe their shares are poised for significant price appreciation over the long term,” he said in a recent note to clients. “However, while we believe the Canadian railroads are solid companies, we do not believe they are the best short- to medium-term investment opportunity in the industrial space at this time.”