Is CP Rail Stock a Buy After Strong Earnings?

Here’s why long-term investors considering CP Rail (TSX:CP)(NYSE:CP) stock may want to simply hold long term.

| More on:

One of the companies many investors have on their radar of late, CP Rail (TSX:CP)(NYSE:CP) is an intriguing company to watch. Indeed, CP Rail stock has been on a nice upward trajectory since its recent earnings report this month.

Any time a stock runs nicely into earnings, expectations can take this stock lower, even following a beat. CP’s stock chart over the past month is a thing of beauty to observe.

However, CP Rail stock is one that has continued to outperform, as investors bet on continued economic growth coming out of this pandemic. In other words, this is a stock that just can’t seem to do any wrong.

Let’s dive into why CP could be a great investment long term for investors who stay patient with this company.

Strong earnings propel CP Rail stock higher

CP showed what could be considered mixed results from its most recent quarterly earnings report. The company maintained its full-year adjusted EPS guidance. However, the company’s Q3 adjusted earnings did miss consensus analyst estimates.

Supply chain challenges and a weak grain crop weighed on the recent results of CP. Accordingly, it looks like the market is giving this railroad operator a pass. The company’s expectation of low-single-digit growth in volume over the next year is also being viewed positively, given how rapidly volumes have increased this year.

In other words, CP Rail stock is acting very different from other stocks in the market right now. Much of that is likely to do with the company’s relatively decent valuation. The company currently trades around 20 times earnings and is positioned well for double-digital earnings-per-share growth this year.

CP believes that macro conditions remain significantly strong. As weather conditions improve in the coming year, its expected grain shipments could pick up. Additionally, semiconductor shortages, and supply chain issues in the automotive segment have hurt recent numbers. However, it’s the view of CP (and apparently that of the market) that these shortages represent demand that will be pulled forward at some time.

Bottom line

I think CP Rail stock continues to look attractive at these levels. The company’s valuation is reasonable, and the stock still pays out a small but meaningful dividend yield. For those bullish on where the North American economy is headed, this is about as economically sensitive a play as one can get right now.

Accordingly, I think the market is getting it right with this company’s recent earnings. CP Rail stock is one that I think has a lot more room to run. Long term, patient investors would do well to hold this stock as a core portfolio holding.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any of the stocks mentioned.

More on Dividend Stocks

Canadian dollars are printed
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Toronto-Dominion Bank (TSX:TD) stock could do well in the year ahead.

Read more »

monthly desk calendar
Dividend Stocks

Monthly Income: Top Dividend Stocks to Buy in November

Here are two of the best monthly dividend stocks in Canada you can buy in November 2024 and hold for…

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »

Hourglass and stock price chart
Dividend Stocks

Goeasy Stock: Is It Heading for a 52-Week High?

Goeasy stock has been edging higher, especially after another record-setting earnings report. So are 52-week highs in sight?

Read more »