After a 30-year hiatus, shares in Canadian Pacific Railway are once again trading on North American stock exchanges.
One market analyst says farmers with a few dollars to spare should consider investing in their traditional adversary.
On the Toronto Stock Exchange, CPR shares opened on Oct. 3 at $22.51 per share and within two days had risen by 15 percent to $25.70.
“I’d expect it to continue to strengthen,” said Murray Leith of Vancouver-based Odlum Brown. “In 12 months time, $30 or $32 is a realistic target.”
Leith described the company as one of the best run and most profitable railways in North America.
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Shares in CPR first began trading on the New York Stock Exchange in 1883, as the company sought financing to build a railroad across Canada. In 1892, the company’s shares were listed on the TSE.
In 1971, CPR became part of the conglomerate Canadian Pacific Ltd. and investors were no longer able to put their money directly into the rail company.
Leith said that while smaller than most of its major competitors, the company has done a good job of keeping costs down.
Also, with several years of heavy capital spending behind it, the company is positioned to record strong cash flow.
Despite these positives, CPR shares are valued well below other North American rail companies, a fact which Leith said bodes well for future price increases.
“CP is trading at a discount to its peer group, but in terms of profitability, efficiency and return on capital, it measures up well above the average of the peer group,” he said.
Exactly what happens to CPR’s share price in the short term will be affected by a variety of factors, including grain traffic volumes (grain accounted for 22 percent of CPR revenues in 2000) and the impact of the Sept. 11 terrorist attacks on Canada-U.S. trade and the economy in general.
“But the medium-term outlook is probably quite good,” said Leith.
The company has told investors it expects annual growth of four percent in revenue and 10 percent in earnings and has promised to limit increases in operating expenses to two percent annually.
Earlier this year, CP Ltd. decided to spin off its five divisions – CPR, CP Ships, Pan-Canadian Energy, Fording Coal and Fairmont Hotels – into separate publicly traded companies.
CP Ltd. shareholders received one CPR share for every two CP Ltd. shares they owned, producing approximately 158.2 million issued and outstanding common CPR shares. Based on the Oct. 4 price, those shares have a quoted market value of $3.86 billion.
Some analysts say the public listing of CPR shares makes the railway vulnerable to a takeover by one of the large U.S. railroads, something that many in Western Canada say could unleash huge changes in prairie grain transportation.
CPR officials say they don’t foresee any mergers in the rail industry in the next few years, and insist the railway will survive and prosper through strategic alliances with American companies like Union Pacific and Southern Pacific railroads.
Leith said the public listing does open the door to an acquisition or merger, but that’s something he thinks would be “a net positive” for shareholders.
Analysts have said they expect most of CPR’s shares will be owned by institutional investors in the United States and elsewhere around the world.
