Canadian Pacific Kansas City Limited (CP): A Bull Case Theory

Core Thesis - Canadian Pacific Kansas City Limited (CPKC) is viewed positively due to its solid financial performance and strategic advantages, despite some near-term uncertainties [1][4]. Financial Performance - CPKC reported Q2 2025 EPS of $1.12, an increase from $1.05 in Q2 2024, driven by a 3% year-over-year revenue increase [2]. - Revenue growth was supported by a 7% rise in volumes and favorable pricing, although it faced challenges from lower fuel surcharge revenue and the removal of the carbon tax [2]. - The operating ratio improved by 110 basis points to 60.7%, indicating ongoing cost efficiencies [2]. Guidance and Strategic Position - CPKC reaffirmed full-year EPS guidance of 10–14% growth, with strong visibility across various traffic segments despite macroeconomic uncertainties [3]. - The company has demonstrated capital discipline by buying back 45% of a 4% Normal Course Issuer Bid (NCIB) [3]. - CPKC's North–South network and resilient infrastructure provide strategic advantages, insulating it from U.S. transcontinental rail mergers [3]. Valuation and Market Position - The stock is trading at a premium valuation compared to U.S. rail peers, which may impact near-term performance [4]. - Uncertainty regarding CEO Keith Creel's 2026 contract renewal could also weigh on the stock [4]. - CPKC offers a modest dividend yield of approximately 0.7–0.8% and maintains pricing power against inflationary pressures [4]. Investment Outlook - CPKC is characterized as a structurally strong franchise with long-term moat characteristics, but investors are advised to hold existing positions and wait for a more attractive entry point [5]. - The emphasis is on near-term execution, volume growth, and cost efficiency as key factors for CPKC's performance [6].