Key Takeaways Canadian Pacific faces downward earnings revisions and weak share performance over the past year.CP's operating expenses rose in 2025, driven by labor agreements despite lower fuel costs.CP carries high leverage with limited cash and operates in a weakly ranked rail industry.Canadian Pacific Kansas City Limited (CP) is currently mired in multiple headwinds, which, we believe, have made it an unimpressive investment option.Let’s delve deeper.Key Risks to WatchSouthward Earnings Estimate Revisio ...

Core Thesis - Canadian Pacific Kansas City Limited (CPKC) is viewed positively due to its operational efficiency, steady earnings growth, and strong management, despite facing near-term volume challenges [1][4]. Financial Performance - CPKC reported Q3 2025 EPS of $1.10, slightly up from $1.09 year-over-year, with revenue increasing by 3% supported by 5% volume growth [2]. - The operating ratio improved by 220 basis points to 60.7%, even after accounting for a one-time derailment cost of 100 basis points [2]. - Management reaffirmed EPS growth guidance for 2025 at 10-14%, although Q4 volumes are down approximately 3% year-over-year [2][3]. Revenue Segments - The North American grain harvest, which contributes over 20% of CPKC's revenue, is expected to help mitigate the volume shortfall in the latter part of the year [3]. Shareholder Returns and Leverage - Over 90% of a 4% Normal Course Issuer Bid (NCIB) has been completed, indicating active shareholder returns, though net debt-to-EBITDA has increased to 3.2x [3]. - There is a noted trade-off between aggressive buybacks and maintaining balance sheet conservatism [3]. Market Position and Valuation - CPKC's valuation is considered elevated, with a preference for entry under a P/E of 20, ideally around the $90 range [4]. - The company is recognized for its long-term competitive advantages, credible management, and pricing power, but current volume headwinds suggest a cautious approach [4][5]. Investment Recommendation - The recommendation is to hold existing positions while waiting for a more attractive entry point for new investments, emphasizing the importance of acquiring the stock at the right price rather than at a premium valuation [5].

Company Overview - CPKC is a relatively new entity, having been formed 2.5 years ago from the merger of two established rail networks, making it the smallest railroad but the only one connecting all three North American nations [3]. Growth and Market Position - Despite facing a freight recession since its inception, CPKC has managed to lead the industry in growth, driven by the creation of new markets and synergies from its operations [3]. - The company emphasizes its growth is not solely dependent on economic conditions but rather on the markets it has developed and the self-help initiatives implemented across various business segments [3].

Summary of Canadian Pacific Kansas City (CPKC) Conference Call - December 02, 2025 Company Overview - **Company**: Canadian Pacific Kansas City (NYSE: CP) - **Industry**: Rail Transportation Key Points and Arguments 1. **Company Growth and Positioning**: CPKC is in its early stages of growth, having combined two established rail networks. Despite economic challenges, the company has led the industry in growth through market creation and synergies [2][3][4] 2. **Earnings Outlook**: CPKC aims for double-digit earnings growth, supported by cost control and a strong grain crop in Canada, with expectations of moving 73 million metric tons of grain [3][4] 3. **Intermodal and Automotive Growth**: The company has seen significant growth in domestic intermodal traffic, up 48% year-over-year, and anticipates continued growth in the automotive sector [5][6] 4. **Capital Expenditure Plans**: CPKC plans to reduce capital expenditures to a range of $2.6 billion to $2.8 billion in 2026, focusing on operational efficiencies and infrastructure investments [20][22] 5. **Revenue Synergies**: The company is on track to achieve $1.4 billion in revenue synergies by the end of 2026, driven by unique market connections and operational efficiencies [12][14] 6. **Market Dynamics**: CPKC is positioned to benefit from the resolution of trade disputes, particularly with China, which is expected to increase soybean movements [4] 7. **Regulatory Environment**: Concerns were raised about potential mergers in the industry (UP and NS), with CPKC's unique North-South positioning providing a competitive advantage. The complexity of regulatory approvals for such mergers is highlighted [44][45][49] 8. **Future Opportunities**: CPKC anticipates significant revenue growth from connecting Canadian and Mexican markets, with an expected annualized revenue of approximately $460 million from this initiative [39][40][41] Additional Important Insights 1. **Leadership Commitment**: CEO Keith Creel expressed strong commitment to CPKC, emphasizing the importance of legacy and the completion of integration efforts post-merger [17][18] 2. **Infrastructure Investments**: CPKC has made substantial investments in infrastructure, which are expected to yield operational efficiencies and support future growth [20][30] 3. **Partnerships and Collaborations**: The company is leveraging partnerships, such as with Americold, to enhance its service offerings and create additional growth opportunities [35][36] 4. **Market Diversification**: The company is capitalizing on the trend of market diversification between Canada and Mexico, which has been accelerated by recent tariff challenges [39][41] 5. **Shareholder Returns**: CPKC is planning to gradually increase its dividend payout ratio and is considering share buybacks as part of its capital allocation strategy [23][25] This summary encapsulates the key insights and strategic directions discussed during the CPKC conference call, highlighting the company's growth trajectory, market positioning, and future opportunities within the rail transportation industry.

Core Insights - CPKC has successfully integrated Kansas City Southern since the acquisition in 2021, focusing on growth and operational efficiency [3] - The company has achieved a 5% increase in volumes on a Revenue Ton Mile (RTM) basis this year, demonstrating strong performance in the industry [3] - CPKC is expected to report double-digit Earnings Per Share (EPS) growth for both the previous and current year, indicating robust financial health [4] - The company has maintained its position as an industry leader in safety, with improvements in train accident frequency and personal injury metrics [4]

Core Insights - Analysts at the Bank of Nova Scotia have expanded their list of stock recommendations following the announcement of six new major infrastructure projects by Prime Minister Mark Carney, adding to an initial five projects [1] Group 1: New Infrastructure Projects - The new projects include an electricity transmission corridor, a floating liquefied natural gas (LNG) terminal in northern British Columbia, a critical mineral mine in New Brunswick, a nickel mine in Ontario, a graphite mine in Quebec, and a hydro line to the Arctic [1] Group 2: Beneficiary Companies - Snowline Gold Corp. (TSX:SGD) may benefit from lower energy costs due to the B.C. electricity project [1] - Enbridge Inc. (TSX:ENB) is expected to play a role in the LNG terminal, potentially assisting in building a pipeline for the project [1] - Alberta gas companies such as AltaGas Ltd. (TSX:ALA), Keyera Corp. (TSX:KEY), and Pembina Pipeline Corp. (TSX:PPL) could also benefit from the LNG terminal [1] - TC Energy Corp. (TSX:TCL) may be involved in further large-scale pipeline investments in the region [1] Group 3: Engineering and Construction Stocks - Several engineering and construction companies have been highlighted, including AtkinsRealis Group Inc. (TSX:ATRL), Stantec Inc. (TSX:STN), and WSP Global Inc. (TSX:WSP) [1] - Equipment dealers such as Finning International Inc. (TSX:FTT) and Toromont Industries Ltd. (TSX:TIH) are also noted as potential beneficiaries [1] Group 4: Transportation Companies - Transportation companies like Canadian National Railway Co. (TSX:CNR) and Canadian Pacific Kansas City Ltd. (TSX:CP) may see upside from these infrastructure developments [1]

Core Insights - Canadian Pacific Kansas City Limited (NYSE:CP) is recognized as one of the best Canadian dividend stocks for long-term investment [1] - Bernstein has lowered its price target for CP from $87.12 to $82.08, citing revenue pressure in Q3 despite stable operating expenses [2] - In Q3 2025, CP reported revenues of C$3.7 billion, a 3% increase from C$3.5 billion year-over-year, with an improved operating ratio of 60.7% and an 11% rise in earnings per share to $1.10 [3] - The merger with Kansas City Southern has positioned CP uniquely with a direct route linking Canada, the U.S., and Mexico, covering approximately 32,000 kilometers of track [4] Financial Performance - CP's Q3 2025 revenue reached C$3.7 billion, reflecting a 3% increase from the previous year [3] - The operating ratio improved by 220 basis points to 60.7%, indicating enhanced operational efficiency [3] - Earnings per share increased by 11% to $1.10, supporting management's full-year earnings growth outlook of 10% to 14% [3] Strategic Advantages - CP's extensive network, established through the merger with Kansas City Southern, provides a competitive edge by connecting key agricultural, industrial, and energy regions across North America [4] - The company maintains manageable debt levels and strong free cash flow, allowing for continued investment in network upgrades while sustaining dividends and share buybacks [4]

Core Insights - Canadian Pacific Kansas City (CPKC) will participate in the 2025 UBS Global Industrials and Transportation Conference on December 2, 2025, at 9:40 a.m. ET, with President and CEO Keith Creel and Senior Vice President Ian Gray addressing the audience [1][2]. Company Overview - CPKC is the first and only single-line transnational railway connecting Canada, the United States, and Mexico, providing access to major ports from Vancouver to Atlantic Canada, the Gulf Coast, and Lázaro Cárdenas, Mexico [2]. - The railway spans approximately 20,000 route miles and employs around 20,000 railroaders, offering extensive rail service and network reach to key markets across North America [2]. - CPKC is focused on growth alongside its customers, providing a range of freight transportation services, logistics solutions, and supply chain expertise [2].

Summary of Canadian Pacific Kansas City (CPKC) Conference Call Company Overview - **Company**: Canadian Pacific Kansas City (CPKC) - **Date**: November 18, 2025 - **Key Speaker**: Nadeem Velani, EVP and CFO Core Points and Arguments Growth and Performance - CPKC has experienced a **5% increase in revenue ton miles (RTM)** this year, leading the industry in volume growth [3][4] - The company achieved **double-digit earnings per share (EPS) growth** for the second consecutive year [4] - CPKC has maintained its position as the **industry leader in safety**, reducing train accident frequency and personal injury rates [4] Shareholder Returns - CPKC increased its dividend by **20%** earlier this year, marking the first increase since the acquisition of Kansas City Southern [4] - The company repurchased **4% of its outstanding shares**, demonstrating a commitment to returning cash to shareholders [4][30] Future Outlook - For 2026, CPKC anticipates **low double to mid-teen EPS growth**, despite a challenging macroeconomic environment [9][10] - The company is optimistic about **Canadian grain volumes**, with expectations of a potentially record crop, which will positively impact future performance [7][11] Synergies and Integration - CPKC expects to achieve approximately **$1.1 billion in revenue synergies** from the KCS acquisition by the end of the year, with an additional **$200 million to $250 million** expected in 2026 [16][19] - The integration process has faced challenges, particularly in IT, but recovery has been swift, with operations returning to normal within **30 days** [25] Capital Expenditure and Financial Health - CPKC's capital expenditure for the year is projected to be **CAD 2.9 billion**, the highest in the company's history, with a focus on upgrading locomotives and infrastructure [26][27] - The company aims to maintain a leverage ratio below **3**, allowing for continued share buybacks and dividend increases [29][30] Industry Landscape and Opportunities - CPKC is prepared to allocate capital for potential opportunities arising from concessions in the U.S. rail industry [31] - The company is exploring the use of **AI** for operational improvements, including safety and efficiency enhancements [33][34] Return on Invested Capital (ROIC) - CPKC plans to reintroduce ROIC as a key performance metric, aiming to return to **double-digit ROIC** in the coming years [36][37] Additional Important Content - The company has successfully implemented **self-help initiatives** to gain market share and improve performance despite a prolonged freight recession [9][10] - CPKC's approach to capital allocation is flexible, allowing for adjustments based on market conditions and opportunities [31][32] - The integration of new technologies and AI is seen as a critical area for future growth and operational efficiency [34][35]

Core Insights - Canadian Pacific Kansas City Limited (CP) is experiencing increased expenses and tariff-related challenges, making it less attractive for investors [1][9] Financial Performance - The Zacks Consensus Estimate for CP's earnings has been revised downward by 2.33% for 2025 and 2.53% for 2026 over the past 60 days, indicating a lack of confidence from brokers [2] - CP's shares have declined by 4.7% over the past year, compared to a 3.7% decline in the Transportation - Rail industry [3][9] - Total operating expenses for CP in Q3 2025 were $2.33 billion, although they fell, they remained at a high level [6] Industry Context - CP currently holds a Zacks Rank of 4 (Sell), and the industry rank is 207 out of 243, placing it in the bottom 14% of Zacks Industries [5] - The performance of CP is significantly influenced by the overall industry, as studies indicate that 50% of a stock's price movement is related to its industry group [5][6] Challenges - CP is facing significant headwinds due to elevated expenses and a volatile macroeconomic environment characterized by economic uncertainty, shifting tariff regulations, and geopolitical tensions [7][9]