CP's Operating Ratio Hammered by Weather and Network Shocks, Expect Full-Year Recovery
We expect wide-moat Canadian Pacific Railway to recover to a strong sub-60% annual operating ratio during 2019 despite a rough start because of a harsh winter and a tragic accident that slowed the mainline. We are increasing our fair value estimate slightly because of the time value of money and to better reflect the strong pricing in the rail segment during the period, in our valuation model. Management described same-store pricing improvements as near the high end of its 3%-4% expectation, and...Canadian Pacific Railway operates a transcontinental railway in Canada and the U.S. Co.'s business mix includes bulk commodities, merchandise freight and intermodal traffic, serving the principal business centers of Canada from Montreal, Quebec, to Vancouver, British Columbia, and the U.S. Northeast and Midwest regions. As of Dec 31 2016, Co. operated on a network of approximately 12,400 miles of track, of which CP owns 10,800 miles and has access to 1,600 miles under trackage rights and lease agreements. Of the total mileage operated, about 5,600 miles were located in western Canada, 2,000 miles in eastern Canada, 4,400 miles in the U.S. Midwest and 400 miles in the U.S. Northeast.
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