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Canadian Pacific (CP) Stock Down 4.4% Year to Date: Here's Why

Canadian Pacific Railway Limited CP shares have lost 4.4% in the year-to-date period compared with the industry’s 1.5% rise.

Image Source: Zacks Investment Research

Reasons for Downside

The railroad operator’s total operating expenses have increased 8.2% to $2,413 year over year in the first half of 2021. With fuel costs increasing as oil prices move north, operating expenses are likely to be high in third-quarter 2021 too. This is likely to hurt the bottom line.

At the end of second-quarter 2021, Canadian Pacific had cash and cash equivalents of C$892 million, way below its long-term debt of C$7,850 million. It indicates that the company does not have sufficient cash to meet its current-debt obligations. The company's current ratio (a measure of liquidity) is pegged at 0.71 at the end of second-quarter 2021.  A current ratio of less than 1 is not desirable as it often indicates that the concerned company does not have the requisite financial resources to meet its short-term obligations.

Unfavorable Estimate Revisions & Lackluster Momentum Score

Driven by the above headwinds, the Zacks Consensus Estimate for current-year earnings has dropped 3.3% to $3.27 per share.The company’s Momentum Score of D further highlights its short-term unattractiveness.

Zacks Rank & Stocks to Consider

Canadian Pacific currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Zacks Transportation sector are Schneider National, Inc. SNDR, C.H. Robinson Worldwide, Inc. CHRW and TFI International Inc. TFII. All the stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Schneider National, C.H. Robinson and TFI International are pegged at 17.9%, 9% and 31.6%, respectively.

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