Barclays on North America Airfreight & Ground Transportation: Upgrade Canadian Pacific (CP); Downgrade Canadian National (CNI)
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Price: $95.64 +0.85%
Rating Summary:
20 Buy, 14 Hold, 2 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
20 Buy, 14 Hold, 2 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Barclays on North America Airfreight & Ground Transportation: CP Opportunity More in Focus, Upgrade to EW; Downgrade CN to UW
Barclays analyst, Gary Chase, said, "Our analysis suggests a large upside cost opportunity for Canadian Pacific (NYSE: CP) in the years ahead and recently disclosed activist ownership is likely to renew discussion of that opportunity while this year's operational challenges recede. On the flip side, we see growth potential at Canadian National Railway (NYSE: CNI) and believe results remain strong, but expect relatively steep valuation to limit equity returns looking forward. We believe expectations are low for CP; even minor progress on efficiencies could change perception of the company's longer-term opportunity. Execution is the largest risk, and this opportunity is likely to take time in developing. However, the market has seemed indifferent to the ownership changes and potential opportunity, creating a seemingly low cost option on improvement and a better risk-reward for patient investors."
"Structural differences between CP and CN likely easy to overstate, just like they were between CSX Corp (NYSE: CSX) and Norfolk Southern (NYSE: NSC) - Many used to think CSX's network was structurally different than NSC's, precluding similar profitability. Performance since then suggests otherwise. Our analysis suggests CP could benefit from ~9% margin improvement matching best-in-class cost efficiency (mostly CN). In the near term, CP will likely face further earnings pressure from rising pension expense, but we believe considerable long-term opportunity balances those risks."
"CN benefiting from growth, but at current valuation, other rails more compelling - CN is generating sector leading returns, but we suspect current valuations make for a difficult relative upside case looking forward. We expect the carrier to deliver on growth initiatives, but think other rail equities offer more compelling risk-reward profiles."
Barclays raises PT on CP from $61 to $67, maintains PT of $78 on CNI.
Barclays analyst, Gary Chase, said, "Our analysis suggests a large upside cost opportunity for Canadian Pacific (NYSE: CP) in the years ahead and recently disclosed activist ownership is likely to renew discussion of that opportunity while this year's operational challenges recede. On the flip side, we see growth potential at Canadian National Railway (NYSE: CNI) and believe results remain strong, but expect relatively steep valuation to limit equity returns looking forward. We believe expectations are low for CP; even minor progress on efficiencies could change perception of the company's longer-term opportunity. Execution is the largest risk, and this opportunity is likely to take time in developing. However, the market has seemed indifferent to the ownership changes and potential opportunity, creating a seemingly low cost option on improvement and a better risk-reward for patient investors."
"Structural differences between CP and CN likely easy to overstate, just like they were between CSX Corp (NYSE: CSX) and Norfolk Southern (NYSE: NSC) - Many used to think CSX's network was structurally different than NSC's, precluding similar profitability. Performance since then suggests otherwise. Our analysis suggests CP could benefit from ~9% margin improvement matching best-in-class cost efficiency (mostly CN). In the near term, CP will likely face further earnings pressure from rising pension expense, but we believe considerable long-term opportunity balances those risks."
"CN benefiting from growth, but at current valuation, other rails more compelling - CN is generating sector leading returns, but we suspect current valuations make for a difficult relative upside case looking forward. We expect the carrier to deliver on growth initiatives, but think other rail equities offer more compelling risk-reward profiles."
Barclays raises PT on CP from $61 to $67, maintains PT of $78 on CNI.
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