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

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Canadian Pacific Railway Limited’s (TSE:CP) latest earnings update in December 2018 signalled that the business endured a immense headwind with earnings falling by -19%. Below is a brief commentary on my key takeaways on how market analysts predict Canadian Pacific Railway’s earnings growth outlook over the next few years and whether the future looks brighter. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.

View our latest analysis for Canadian Pacific Railway

Analysts’ outlook for the upcoming year seems buoyant, with earnings increasing by a robust 18%. This growth seems to continue into the following year with rates arriving at double digit 28% compared to today’s earnings, and finally hitting CA$2.7b by 2022.

TSX:CP Future Profit February 11th 19
TSX:CP Future Profit February 11th 19

Although it’s informative knowing the growth each year relative to today’s value, it may be more valuable to analyze the rate at which the business is moving every year, on average. The pro of this technique is that it removes the impact of near term flucuations and accounts for the overarching direction of Canadian Pacific Railway’s earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I’ve inserted a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 8.8%. This means that, we can presume Canadian Pacific Railway will grow its earnings by 8.8% every year for the next few years.

Next Steps:

For Canadian Pacific Railway, I’ve compiled three fundamental factors 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 CP 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 CP is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of CP? 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.