Scotia Capital Inc. analysts Turan Quettawala has offered some “takeaways’’ from the recent TPM Conference (trans-Pacific and global container shipping) in California, including reduced first quarter estimates for both
Canadian Pacific Railway Ltd. (
TSX: T.CP,
Stock Forum) and
Canadian National Railway Co. (
TSX: T.CNR,
Stock Forum) due to weather.
The reduction in first quarter estimates was significant as volumes are weak for both rails, Quettawala wrote in a research report.
“However, on a full year 2014 basis, this was offset by improved volume expectations in the second quarter,” the analyst said.
“Many customers have been vocal about lack of cars, which suggests that there is pent-up volume. As such, there may even be some volume-related upside to our first quarter estimates for both rails if the weather improves faster.’’
Quettawala went on to say that for CP, the recently announced buyback announcement also helped EPS estimates for full year 2014 and 2015.
“We believe that in a positive economic environment, both rails are likely to outperform the market with relatively low risk,’’ he wrote.
“CP remains our preferred pick, based on better growth prospects. Also, we believe there is upside to consensus estimates over the next 12 to 18 months. We would be buyers of CP shares on any quarter-related weakness.”
Scotia has reduced CP’s earnings per share to $1.39, based on weather-related weakness. “We believe the consensus estimate for Q1 will likely come down over the next few weeks as the volume picture becomes clearier,’’ Quettawala said.
Scotia has cut its 2014 IPS estimate for CNR by 1% to $3.40 from $3.43 as the investment firm expects volumes to recover materially in the second quarter. The Q1 EPS estimate now stands at $0.62.
Quettawala has set a one-year stock price target of $176 for Canadian Pacific, which traded Monday at $171.14. He has set a one-year-target for CN at $65. The stock traded Monday at $62.63.