CP - Canadian Pacific: Nearshoring Trends Capacity Expansion And Market Share Gains Can Drive Upside
2024-06-18 10:22:20 ET
Summary
- CPKC is poised for multiyear growth post-merger, benefiting from revenue synergies, nearshoring trends, and market share gains.
- Margin outlook is positive with operating leverage, pricing improvements, and operational efficiencies.
- I continue to rate the stock as a buy.
Investment Thesis
I last covered Canadian Pacific Kansas City Limited ( CP ) in December 2023 with a buy rating and the stock has delivered a modest ~5% gains since then. While the challenging freight market continues to weigh on investor sentiments, CPKC has several company-specific growth drivers that can help it outperform despite the tough environment. The company is poised to benefit from revenue synergies from the Canadian Pacific and Kansas City Southern (KCS) merger. The CP-KCS merger makes the company the first and only transnational railway network connecting Canada, the U.S., and Mexico, which positions it well for capturing cross-border trade and gaining market share from trucking companies as well as other railroads. In addition, revenue growth should see gains from favorable megatrends like nearshoring, which should drive increased demand. Further, the company’s network provides single-line connectivity between Mexico, the U.S., and Canada, which adds convenience for its customers and should result in good pricing power. The company is also expanding its capacity to capitalize on the increased demand, which bodes well for revenue growth in the coming quarters....
Canadian Pacific: Nearshoring Trends, Capacity Expansion, And Market Share Gains Can Drive Upside