Canadian Pacific Kansas City (TSX:CP) continues to be a diamond in the rough. Shares of CP stock are climbing higher and higher even as the market drops. In fact, shares of CP stock continue to trade around all-time highs.
While Canadians certainly can find a lot of deals on the TSX today, I would still consider CP stock to be a great long-term deal. Let’s get into why, right now.
What happened
Over the last few years, CP stock has gone through a lot. The past decade or so, really. The company got a new management team that brought the hammer down. It cut unnecessary spending, which included closing rail yards and laying off employees.
After getting its funds under control, it was time to expand. This included updating infrastructure, as well as investing in hydrogen-powered rail cars. But the biggest change came in the last few years alone.
CP stock was in a heated battle to bring Kansas City Southern Railway into the fold. After a huge back and forth that has lasted years, the company finally received approval from the Surface Transportation Board of the United States. It is now officially the only railway that can run from Canada down to Mexico.
This has led to the excitement of investors and analysts alike, and yet, things are only starting to heat up.
What we can look forward to
The profitability improvements that CP stock has undergone over the years have been nothing short of miraculous. It went from being one of the worst-ranked performers in the rail industry, to one of the best by 2019, according to analysts.
The new partnership with Kansas City will certainly be a costly one, which is why the dividend was sliced in half over the last few years. However, the company then brought on a solid amount of new business in 2022, and that should improve even further with the acquisition of Kansas City.
Yet it’s important to note that earnings were quite strong even before the merger. And that’s expected to continue. While the near-term might be weaker on the back of lower economic performance, long-term investors should certainly consider buying and holding the stock.
Bottom line
Anything could happen in the next few years in terms of CP stock, and really it already has. Shares have gone higher and higher on any potential momentum from this acquisition. CP has quite a long ways to go to pay off the billions it cost to take on Kansas City, but overall the expansion should benefit revenue quite a lot.
Shares remain up 12% in the last year, but are about stable with where they were at the start of 2023. They’re also down about 8% from heights achieved earlier this year, thanks to lower earnings than hoped for.
Even so, long-term growth potential should not be ignored for investors in CP stock. Shares of the company could even double in the next year or two as the market recovers, and Kansas City revenue rolls in. So certainly consider putting CP stock on your long-term watchlist.
