2. Canadian Pacific Railway Limited (NYSE:CP)
No. of Hedge Fund Holders: 42
Performance of CP Over the Past Six Months: +14%
Canadian Pacific Railway Limited (NYSE:CP) owns and operates a transcontinental freight railway in Canada and the US. The company offers rail and intermodal transportation services over a network of around 13,000 miles.
Bank of America covered Canadian Pacific Railway Limited (NYSE:CP) and raised its rating from “Neutral” to “Buy.” It has increased its price objective from $85.00 to $87.00 in a report dated September 12.
Insider Monkey surveyed 895 hedge fund portfolios for their June quarter investments and discovered that 42 held stakes in Canadian Pacific Railway Limited (NYSE:CP). In the preceding quarter, 41 hedge funds reported owning stakes in the company.
Pershing Square Holdings, an investment holding company, published its second quarter of 2022 investor letter in which it mentioned Canadian Pacific Railway Limited (NYSE:CP). Here is what the fund said:
“Canadian Pacific Railway Limited (NYSE:CP) is a high-quality, inflation-protected business led by a best-in-class management team that operates in an oligopolistic industry with significant barriers to entry. With an improving volume and pricing outlook combined with the upcoming transformational acquisition of Kansas City Southern (“KCS”), we believe that CP’s prospects are bright.
CP reported revenue growth of 7% in the second quarter as pricing and mix, fuel surcharge pass-throughs and foreign exchange more than offset a small decline in volumes. CP is leveraging the strong pricing environment to renew contracts at an average price increase of over 6%. Pricing directly benefits earnings as rails pass on increases in fuel and other expenses to customers through contractual fuel surcharges and CPI escalators. In addition to earnings growth, high inflation should help rail transportation take share from trucking and lead to incremental volume growth over time. Customers are choosing cheaper transportation solutions as prices rise, and CP’s mission-critical rail service is often the cheapest or only viable method for transporting heavy freight over long distances. High fuel prices and wage gains also disproportionally increase the cost of trucking, which is up to three times less fuel efficient and much more labor intensive than rail transportation.
The demand outlook for CP continues to improve, especially given the current geopolitical environment. Russia’s invasion of Ukraine and the resulting supply disruptions have boosted demand for Canadian exports such as grain and potash. Deglobalization has also increased the likelihood of major North American onshoring and energy production, which will accelerate CP’s volume growth in the future. Total volumes declined by 2% in the second quarter due to the smaller than average Canadian grain harvest, while volumes excluding grain increased by 5%. The grain headwind will flip to a tailwind in the fall as CP anticipates a normal grain crop, which supports management’s double-digit volume and revenue growth outlook for the second half of 2022. …” (Click here to read the full text)
