RE: Have Any Analysts Lowered their Targets CANADIAN PACIFIC RAILWAY (CP-TSX; CP-NYSE)
RANDY COUSINS, CFA - Nesbitt Burns
Rating: Outperform
Price: $47.79
Target: $60.00
2005E EPS: $3.19
2006E EPS: $3.91
2007E EPS: $4.47
Title: Five Reasons to Buy CP Rail plus Three More
Event: CP Rail reduced its 2006 earnings guidance to a range of $3.60–3.85 per share following Fording Canadian Coal Trust’s announcement on December 7 of lower than expected coal production. Previous 2006 EPS guidance was $3.70–3.85. Fording attributed the reduced production estimates for 2006 to a global shortage of haulage truck tires. Prior to the Fording announcement, CP Rail stock was $51.71 per share. On Monday, December 12, the stock closed at $47.79, down 7.6%.
Impact: Positive. Coal is a good business for CPR. The lower shipments may affect 2006 results, but from our perspective it is largely a timing issue. The correction in the stock juxtaposed against very favourable company and industry fundamentals makes CP Rail compelling value.
Forecasts: Our estimates are unchanged.
Valuation: Our target price remains at $60 or 15.3 times our 2006 estimate.
Recommendation: We view the pullback in CP Rail’s stock as a significant buying opportunity. Superior earnings growth and discount valuation make CP Rail a very attractive stock. Setting aside the company specifics, as the equity markets come to recognize the sustainability of the returns, we believe there is the potential for an upward revaluation of the entire group. At a minimum we would expect the stock to track with its earnings growth. Our rating for CP Rail remains Outperform.