6. Canadian Pacific Kansas City Limited (NYSE:CP)
Number of Hedge Fund Holders as of Q2: 44
Pershing Square’s Equity Stake: $1.18 Billion
Canadian Pacific Kansas City Limited (NYSE:CP) is one of Bill Ackman’s investments in the industrial sector, offering exposure to the railroad business. Ackman has held stakes in the company since 2010 and upped stakes in 2021 by reiterating that the railroad remains the cheapest and most viable way of transporting heavy freight in North America.
Historically, the Canadian Pacific Kansas City Limited (NYSE:CP) was the smaller of the two main railroads in Canada. The company’s acquisition of Kansas City Southern in 2023 brought about this change. From a deep-water port in Mexico to a vast network spanning the spine of North America, the deal gave Canadian Pacific immense reach. Together with its current east-west track across Canada, this network makes freight move quickly across the continent possible.
Canadian Pacific Kansas City Limited (NYSE:CP) has made better use of its assets and provided cash flow throughout market cycles thanks to its precise railroading operating model and focused, disciplined execution approach. Consequently, it saw a 14% year-over-year increase in sales to $3.6 billion in the second quarter of 2024. Its operating ratio at the end of the June quarter was a healthy 64%, and its adjusted earnings per share increased by 27% to $1.05. In contrast, its Q2 operating expenses increased by a mere 5% yearly to $2.33 billion.
Since analysts predict earnings to grow by 13% annually over the next five years, Canadian Pacific Kansas City Limited (NYSE:CP) stock is reasonable at 26 times forward earnings. Additionally, it comes with a 0.67% dividend yield, ideal for generating passive income.
According to Insider Monkey’s second-quarter database, 44 hedge funds were long Canadian Pacific Kansas City Limited (NYSE:CP), compared to 48 funds in the prior quarter.
Here is what Pershing Square Holdings said about Canadian Pacific Kansas City Limited (NYSE:CP) in its fourth quarter 2023 investor letter:
“Canadian Pacific Kansas City Limited (NYSE:CP) is a high-quality, inflation-protected, unique North American railroad that operates in an oligopolistic industry with significant barriers to entry. In 2023, Canadian Pacific made history when it closed the acquisition of Kansas City Southern and renamed the combined company Canadian Pacific Kansas City, creating the only railroad with a direct route connecting Canada, the United States, and Mexico. This transformative acquisition will generate substantial long-term shareholder value as well as create competitive options for shippers and reduce greenhouse gas emissions by converting trucks to rail transportation.
In the 11 months since the acquisition closed, CPKC has already realized $350 million of run[1]rate revenue synergies, exceeding management’s expectations despite a soft demand environment. Broad-based contract wins across end markets, including chemicals, automotive, and cross-border intermodal, demonstrate the attractiveness of the company’s unique service product.
CPKC is also ahead of the plan on realizing cost synergies as the team successfully integrates the two networks after overcoming some operational challenges in Mexico. We believe CPKC is well on its way to achieving management’s goal to more than double the company’s earnings per share by 2028 while holding capital expenditures at current levels. We continue to believe that CPKC’s one-of-a-kind network and superb team are well positioned to deliver profitable long-term growth in the coming years.”
