Canadian Pacific Ready To Switch Tracks To Faster Sales Growth

Analysts at JPMorgan turned bullish on Canadian Pacific Railway Limited (USA) CP as the company is expected to demonstrate accelerating sales growth among other headwinds over the coming years.

Analyst Brian Ossenbeck upgraded Canadian Pacific's TSX-listed stock rating from Neutral to Overweight with a price target boosted from C$216 to C$262 and also added the company to the "J.P. Morgan U.S. Analyst focus List" as a growth idea.

CP's stock has been lagging the overall rail group since April 2016 and investors were left "frustrated" and waiting for any sort of catalyst to boost the stock, Ossenbeck explained in a note. An expected beat and raise quarter in the second quarter of 2017 didn't materialize and third quarter 2017 earnings expectations are for a negative revision as a land sale gain won't be realized until the following quarter.

Perception Is Going To Change

Needless to say, CP's stock has been "stubbornly low" but heading into the end of 2017 and into 2018 the perception is set to change, the analyst said. Specifically, thecompany is expected to benefit from stronger volume growth after some new contract wins which was generated by a "seasoned sales team" which was absent over the past few years.

CP's volume growth will come from new intermodal services, port infrastructure expansion, a ramp of potash volumes, the analyst said. There is additional room for growth from a new chemical business and a "resurgence" of crude being shipped by rail. As a whole, the company should show a 3.5 percent compounded annual volume growth rate through 2019 that should translate to a mid-to-single digit top-line growth rate and improved earnings per share acceleration.

CP's ability to re-accelerate its stock buyback program in 2019 adds another bullish element to the bullish story.

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