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Solid Grain Movement Aids Canadian Pacific (CP) Amid High Debt

We recently issued an updated report on Canadian Pacific Railway Limited CP.

Canadian Pacific is performing brilliantly with respect to grain movement. To this end, the company set a record with respect to movement of Canadian grain and grain products in 2020. In the past year, the railroad operator moved 31.32 million metric tonnes (MMT) of Canadian grain and grain products, more than any previous calendar year.

We are optimistic about Canadian Pacific's impending acquisition of Kansas City Southern KSU.  The deal is expected to be accretive to the company’s adjusted earnings per share (EPS) in the first year, following its closure. Subsequently, it is expected to generate double-digit accretion after the full realization of synergies. The combined entity will drive economic growth in North America by opening up job opportunities and boosting efficiencies among other benefits. The merged entity is anticipated to operate approximately 20,000 miles of rail, employing nearly 20,000 people and generating total revenues of $8.7 billion (based on the 2020 actual revenues). The conclusion of the deal will lead to establishing the first rail network connecting the United States, Mexico and Canada.

At the end of 2020, Canadian Pacific had cash and cash equivalents of C$147 million, way below its debt (maturing within one year) of C$1,186 million, implying that the company does not have sufficient cash to meet its current debt obligations.

Zacks Rank & Stocks to Consider

Canadian Pacific currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Transportation sector include Triton International Limited TRTN and Herc Holdings Inc. HRI. Both Triton and Herc Holdings sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term (three to five years) expected EPS growth rate for Triton and Herc Holdings is projected at 10% and 31.2%, respectively.

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