What Should Investors Know About Canadian Pacific Railway Limited’s (TSE:CP) Future?

After Canadian Pacific Railway Limited’s (TSE:CP) recent earnings announcement in September 2018, it seems that analyst forecasts are fairly pessimistic, as a -8.0% fall in profits is expected in the upcoming year against the past 5-year average growth rate of 18%. Presently, with latest-twelve-month earnings at CA$2.4b, we should see this fall to CA$2.2b by 2020. In this article, I’ve outline a few earnings growth rates to give you a sense of the market sentiment for Canadian Pacific Railway in the longer term. Investors wanting to learn more about other aspects of the company should research its fundamentals here.

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How is Canadian Pacific Railway going to perform in the near future?

Over the next three years, it seems the consensus view of the 26 analysts covering CP is skewed towards the positive sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around three years. I’ve plotted out each year’s earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of CP’s earnings growth over these next few years.

TSX:CP Future Profit January 13th 19
TSX:CP Future Profit January 13th 19

This results in an annual growth rate of 8.6% based on the most recent earnings level of CA$2.4b to the final forecast of CA$2.6b by 2022. This leads to an EPS of CA$19.32 in the final year of projections relative to the current EPS of CA$16.48. However, the near term margins may change heading into 2022, from the current levels of 37% to 32%.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Canadian Pacific Railway, I’ve compiled three relevant aspects you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Canadian Pacific Railway worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Canadian Pacific Railway is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Canadian Pacific Railway? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.