Today we're going to take a closer look at Large-Cap Industrials company Canadian Pacific Railway, whose shares are currently trading at $74.76. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
Canadian Pacific Railway Is Potentially Undervalued and Trades Close Its Graham Number:
Canadian Pacific Kansas City Limited, together with its subsidiaries, owns and operates a transcontinental freight railway in Canada, the United States, and Mexico. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 24.03 and an average price to book (P/B) ratio of 2.89. In contrast, Canadian Pacific Railway has a trailing 12 month P/E ratio of 23.3 and a P/B ratio of 1.49.
Canadian Pacific Railway has moved -4.5% over the last year compared to 17.9% for the S&P 500 — a difference of -22.4%. Canadian Pacific Railway has a 52 week high of $83.65 and a 52 week low of $66.49.
Strong Revenue Growth but Not Enough Current Assets to Cover Current Liabilities:
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $7,792 | $7,710 | $7,995 | $8,814 | $12,555 | $14,546 |
| Operating Margins | 40% | 43% | 40% | 38% | 35% | 36% |
| Net Margins | 31% | 32% | 36% | 40% | 31% | 26% |
| Net Income (M) | $2,440 | $2,444 | $2,852 | $3,517 | $3,927 | $3,718 |
| Net Interest Expense (M) | -$448 | -$458 | -$440 | -$652 | -$771 | -$801 |
| Depreciation & Amort. (M) | $706 | $779 | $811 | $853 | $1,543 | $1,900 |
| Diluted Shares (M) | 696 | 680 | 683 | 933 | 934 | 935 |
| Earnings Per Share | $3.5 | $3.59 | $4.18 | $3.77 | $4.21 | $3.98 |
| EPS Growth | n/a | 2.57% | 16.43% | -9.81% | 11.67% | -5.46% |
| Avg. Price | $43.15 | $53.41 | $72.24 | $72.98 | $79.06 | $74.46 |
| P/E Ratio | 2.48 | 2.99 | 3.38 | 19.31 | 18.73 | 18.66 |
| Free Cash Flow (M) | $1,343 | $1,131 | $2,156 | $2,585 | $1,669 | $2,444 |
| CAPEX (M) | $1,647 | $1,671 | $1,532 | $1,557 | $2,468 | $2,825 |
| EV / EBITDA | 3.67 | 3.85 | 7.0 | 20.45 | 15.59 | 12.5 |
| Total Debt (M) | $8,158 | $8,585 | $18,577 | $18,141 | $19,351 | $19,804 |
| Net Debt / EBITDA | 2.1 | 2.06 | 4.61 | 4.23 | 3.18 | 2.69 |
| Current Ratio | 0.53 | 0.5 | 0.43 | 0.59 | 0.53 | 0.6 |
Canadian Pacific Railway has rapidly growing revenues and increasing reinvestment in the business and generally positive cash flows. Additionally, the company's financial statements display strong operating margins with a stable trend and positive EPS growth. However, the firm has not enough current assets to cover current liabilities because its current ratio is 0.6. Finally, we note that Canadian Pacific Railway has significant leverage levels.
