Canadian Pacific Railway Ltd. says it will shed 1,000 jobs and cut spending by $400-million this year as the railway grapples with declining freight volumes in a sluggish economy.
Canadian Pacific Railway (CP +11.6%) surges as speculation mounts that it may drop its attempt to purchase Norfolk Southern. Operating ratio is the percentage of operating revenue consumed by operating costs, so a decline would indicate an improvement.
"There is still more to accomplish", CEO Hunter Harrison said during a conference call Thursday about the company's fourth-quarter and year-end results.
"We could just run the railroad".
CP's adjusted profit of C$2.72 per share fell short of the average analyst estimate of C$2.77, according to Thomson Reuters I/B/E/S. Revenue slipped 4 percent to C$1.68 billion, missing the average estimate of $1.72 billion. Meanwhile, the company forecasts a double-digit increase in adjusted profits in 2016. The company in the past year has cut 12 percent of its workforce and now employs 12,800 people in its Canadian and USA operations. RBC Capital upgraded Canadian Pacific Railway Limited from a "sector perform" rating to an "outperform" rating and cut their price target for the company from $189.00 to $179.00 in a research note on Friday.
"The fact that these major railroads have joined to work so feverishly against CP's proposal speaks volumes about their concerns regarding the impact the transaction would have on their competitive position", the letter reads.
"There's a lot of moving parts going on here", Harrison said.
With the multiples above and its estimated 16.5% long-term earnings growth rate in mind, I think its stock should consistently trade at a fair multiple of at least 18, which would place its shares upwards of $204 by the conclusion of fiscal 2016, representing upside of more than 38% from today's levels.
It cited news reports in which those railways said they were concerned about the damage the merger - which would create the largest railway in North America - would have on their profitability and shareholder value.
Canadian Pacific Railway is set to gain from strong the Industrial and Automotive segments.
"If somebody has an ace up their sleeve, and they're not playing by the rules, then we understand that", he said.
Canadian Pacific (TSX:CP) has been repeatedly rebuffed by Norfolk Southern since making a cash and stock offer worth US$28 billion in November, which it later sweetened to between US$37 billion and US$42 billion. "There are some things that have happened, and nearly happen daily, that we certainly did not anticipate". "We have not fallen in love with any deal".
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CP asks US DOJ to review Class I execs' opposition to proposed merger
