Canadian Pacific Railway Ltd

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional.

This is a stock (TSX-CP) that has made me some money this year. Even with today’s prices, the stock increase and dividend since the beginning of the year has produced at return of almost 6%. Not great, but when you consider what other stocks have done, not bad.

All my figures are based on the 5 years ending 2007. What I like about this stock is that, to the end of 2007, the Earnings per Share (EPS) grow nicely at 14% a year. Dividends are increasing well at 12% a year. The closing price has increased at the rate of 16.6% per year. The liquidity of current assets/current liability is low at only .87, but the liquidity of assets/liability is at a not bad 1.57. I like to see both figures at, at least 1.50. The book value (or shareholder’s value) is increasing at a not bad rate of 10.7% a year.

The negatives for this stock are that the revenues are only increasing at 5% a year, but the operation profit margin (OPM) is increasing. The OPM is cash flow/ revenue and when it increases, it means that the company is more efficient. Another negative is that that Accrual Ratio is at 16% and this is quite high. If you look around the internet, you will find that most people have a Hold rating on this stock. This is because everyone expects the EPS to be down in 2008 from 2007. The dividend has already increased this year from $.90 a share to $.99 a share, a 10% increase and the yield is a higher than normal 1.5% (it has in the past varied from 1.2% to 1.4% so this is higher than normal).

I have very little of this stock. I currently will be buying no more. It is hitting a rough patch and it is hard to say how long this will last, as it is partly dependent on the US economy and no one knows when that will recover.

See my spreadsheet at http://www.spbrunner.com/stocks/cp.htm. See my website at http://www.spbrunner.com/stocks.html.

This company is a transcontinental railway operating in Canada and the U.S. Its rail network serves the principal centers of Canada, from Montreal to Vancouver and the U.S. northeast and midwest regions. Alliances with other carriers extend its market reach throughout the U.S. and into Mexico. Canadian Pacific Solutions provides logistics and supply chain expertise. Its web site is www.cpr.ca.