Wednesday, September 5, 2012

Canadian Pacific Railway 2

Companies are going away from plain stock options into all sorts of fancy ways of giving employees shares. This company has not only options but Rights Deferred Share Units (DSU), Rights Performance Share Unit (PSU), and Rights Share Appreciation Rights (SARS). Over the last year, insider trading reports show insider selling of $32.3M and minimal insider buying with net insider selling at $32M. CFO had insider selling of $10.4M and the rest was by officers. As far as I can see the insider selling was of the cashing in of options.

The new CEO owns some $7.7M of shares in the company and he has options worth around $55.6M. William Ackman owns some 14% of CP stock that is worth just under $2B.

I cannot find institutional holders on the site I usually go to, but CNBC says that there are 376 Institutional Holders, 626 Mutual fund Holders and some 36 other Major Holders and totally they hold 77% of the outstanding shares. It has says that over the past 3 months, these holders have reduced their holdings by 9%. (By the way, they only give out information on US companies and so they are using the NYSE-CP symbol.)

However, says that there are 291 institutional holders, holding 73% of the shares and that as of June 30, 2012 there was an increase of 4.6% in what these institutions hold in shares. Plus, says that currently there are 250 institutional owners holding 72.97% of the outstanding share and who increased their shares by 1.4% over the past 3 months. Well, I do not think I learned much from this.

The 5 year low, median and high median Price/Earnings Ratios are 9.83, 13.94 and 17.37. The current P/E Ratio is 18.63 on a stock price of $82.34 and on 2012 earnings of $4.42. This would suggest that the stock price is relatively high.

I get a Graham Price of $53.84 and the 10 year low, median and high median Price/Graham Price Ratios are 0.77, 0.93 and 1.11. The current P/GP Ratio on a stock price of $82.34 is 1.53. This would suggest a relatively very high stock price. The P/GP ratios have fluctuated over the past 10 year, but they have been at their highest over the past two years, with the low P/GP in 2010 and 2011 at 1.01 and 1.02. What you should be looking for is a P/GP at or below 1.00. Still, however you look at it a P/GP of 1.53 is high.

The 10 year median Price/Book Value Ratio is 1.69. The current P/B Ratio is 2.82, which is some 67% higher. This would also suggest that the stock price is relatively high.

The 5 year median dividend yield is 1.78% and the current yield is 1.7%, which is 4.7% lower. What you are looking for is a current yield that is higher than the 5 year median. However, it is not that much higher and so the current dividend yield suggests a high reasonable price. Note that the 10 year median dividend yield at 1.55% is quite a bit lower than the 5 year median dividend yield. The current dividend yield is almost 9.7% lower than the 10 year median dividend yield. For investors that like to use dividend yield to check stock prices, this shows that the current price is quite reasonable.

When I look at the analysts' recommendations, I find Strong Buy, Buy, Hold, and Underperform. The consensus recommendation would be a Hold recommendation. The consensus 12 month stock price is $86.50. This implies a 12 month total return of 6.75%, with 1.7% from dividends and $5.05% from capital gains.

One analysts with a Hold thought that the price was too high, saying that a he thought that a P/E of 14 would be a good P/E for this stock and would be similar to the industry's long term average. (My 5 year median P/E ratio for this stock was 13.94.) A number of analysts remarked that they liked Canadian National Railway better (TSX-CNR).

One analyst thought that the price was too high and that CP will go through a few years of anguish before it solves its problems. A couple of analysts thought the stock has recently gone up because of the proxy fight. However, they feel that the company still has to improve its profitability before it will be a good buy.

See an article in the Globe and Mail related to the hiring of Harrison for CP Railways. If you do not already know, Harrison used to be the CEO at Canadian National Railways (TSX-CNR) until he retired.

It is obvious that I also prefer Canadian National Railways (TSX-CNR). Stock seems a bit pricey when we do not know for sure if Harrison can turn this company around to higher profitability.

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 here CPR. See my spreadsheet at cp.htm.

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. See my website for stocks followed and investment notes. Follow me on twitter.

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