Canadian Pacific Railway

Sound bite for Twitter and StockTwits is: Dividend Growth Industrial. I think that the current stock price by all my testing is pointing to a current expensive price. See my spreadsheet on Canadian Pacific Railway.

I do not own this stock of Canadian Pacific Railway (TSX-CP, NYSE-CP), but I used to. It is a stock I held from 1987 to 1999 so I am following it. I also held it 2006 to 2011. I decided in 2011 to have only one railway stock and chose CN as my railway stock.

What I noticed in updating my spreadsheet was that the Return on Equity (ROE) was quite high at 34.6%. Remember that the ROE has too parts. It is using Net Income and Book Value or Equity. A rising ROE is good if it is because of rising earnings. It is best when both book value and earnings are going up. However, in this case it is high because of dropping book value or equity. However earnings did go up.

Book Value change over the past 3 years is -16.53%, -7.19% and 0.87%. The changes to Net Income (or earnings) over the past 3 years is 68.69%, -8.40% and 18.27%. This is not the best situation. But it points to the fact that ROE is not as good as it first appears to be.

The other thing to point to is that earnings not as good as they might seem because of lower ROE on Comprehensive Income. For 2016 ROE on Comprehensive Income is at 27.6%. This is a lot lower than the 35% ROE on Net Income. What is best is when the Comprehensive Income is nearly the same as Net Income. It then confirms the quality of the Net Income. It is lower it is suggesting that the Net Income may not be a good as it appears.

Another thing is that the company is buying back shares. I must admit I am not a fan of this move. If they cannot think of anything to invest in, I would rather than pay a special dividend rather than buy back shares. Shares have decrease by 2.96% and 0.61% over the past 5 and 10 years.

This means you should look at things like Revenue and not Revenue per share. For example, Revenue is up by 3.78% and 3.12% over the past 5 and 10 years. Revenue per Share is up by 6.94% and 3.75% per year over the past 5 and 10 years. The real growth is showing in Revenue.

Buying back shares tends to make the EPS look better than it actually is. EPS is up by 26.1% and 7.8% per year over the past 5 and 10 years. The growth in net income is up by 22.9% and 7.2% per year over the past 5 and 10 years. The growth is still good, but not quite as good as it seems. The other point is that earnings are up just recently. If you compared 5 year running growth over the past 5 and 10 years, the growth in EPS is up by 11% and 7.8% per year. The growth in Net Income is up by 11.2% and 8.1% per year over the past 5 and 10 years.

The 5 year low, median and high median Price/Earnings per Share Ratios are 20.13, 24.52 and 28.92. The corresponding 10 year values are 13.97, 17.01 and 20.06. The historical ones are 11.38, 13.79 and 16.67. It would seem that a lot of the recent growth in stock price is due to rising P/E Ratios. The current P/E Ratio is 17.93 based on a stock price of $224.16 and 2017 EPS estimate of $12.50. This stock price testing would suggest that the stock price could still be reasonable.

I get a Graham Price of $103.90. The 10 year low, median and high median Price/Graham Price Ratios are 1.28, 1.63 and 1.94. The current P/GP Ratio is 2.16 based on a stock price of $224.16. This stock price testing suggests that the stock price is relatively expensive.

The 10 year median Price/Book Value per Share Ratio is 2.50. The current P/B Ratio is 5.84 a value some 133% higher. The current P/B Ratio is based on Book Value of $5,563M, BVPS of $38.38 and a stock price of $224.16. This stock price testing suggests that the stock price is relatively expensive. Note that a P/B Ratio is 5.84 is a high one.

The historical median dividend yield is 1.47%. The current dividend yield is 1 % based on dividends of $2.25 and a stock price of $224.16. The current dividend yield is 31.7% lower than the historical one. This stock price testing suggests that the stock price is relatively expensive.

The 10 year median Price/Sales (Revenue) Ratio is 2.67. The current P/S Ratio is 4.98 based on 2017 Revenue estimate of $6,531M, Revenue per Share of $45.04 and a stock price of $224.16. The current P/S Ratio is some 86% higher than the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.

When I look at analysts' recommendations I find Strong Buy, Buy and Hold recommendations. The consensus would be a Buy. The 12 months stock price target is $235.00. This implies a total return of 5.84% with 4.84% from capital gains and 1% from dividends based on a current price of $224.16.

David Jagielski on Motley Fool say that the company's good results was due to currency exchange and currency exchange gains in one quarter and show up as a loss in the next. Charles Fournier on Seeking Alpha does a report on this stock and thinks it remains an attractive long-term investment. Erica Schwartz on Dispatch Tribunal talks about recent analysts research. She noted some upgrades and some downgrades. See what analysts are saying on Stock Chase.

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 Canadian Pacific Railway.

The last stock I wrote about was about was Trigon Metals Inc. (TSX-TM, OTC-PNTZF)... learn more. The next stock I will write about will be Medtronic Inc. (NYSE-MDT)... learn more on Wednesday 25, 20157 around 5 pm. Tomorrow on my other blog I will write about Money Show 2017 - Ryan Irvine.3.... learn more on Tuesday, October 24, 2017 around 5 pm.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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