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Canadian Pacific’s (CP) Q4 Earnings: Stock to Disappoint?


Calgary, Canada-based railroad operator, Canadian Pacific Railway Limited CP is scheduled to report fourth-quarter 2016 results on Jan 18, after market close.

In the third quarter, the company reported lower-than-expected earnings and revenues. Results were hurt by weak coal demand, delayed grain harvest and other headwinds. Carloads (volume) plunged 20% year over year and revenue ton-miles fell 6%.

Things look bleak for the company in the fourth quarter as well. Our quantitative model too shows that Canadian Pacific is likely to report lower-than-expected earnings in the fourth quarter. A stock needs to have the right combination of the two key criteria – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) – for increasing the odds of an earnings beat.

Unfortunately, this is not the case here, as elaborated below.

Zacks ESP: The Earnings ESP for Canadian Pacific is -4.94%. This is because the Most Accurate estimate is 12 cents below the Zacks Consensus Estimate of $2.43 per share.

Zacks Rank: Canadian Pacific carries a Zacks Rank # 4 (Sell). You can see the complete list of today’s Zacks #1 Rank stocks here.

Please note, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions as is the case with Canadian Pacific. The Zacks Consensus Estimate for the fourth quarter has gone down by a cent over the last seven days.

Factors Likely to Affect Q4

We expect Canadian Pacific’s fourth quarter results to be hurt by weak coal demand as has been the case in the past few quarters.The company has slashed its 2016 earnings per share growth outlook and now expects the bottom-line to grow in mid-single digits in 2016 (the previous outlook had indicated double-digit earnings per share growth).

Coal and weak energy markets have been a major concern for leading railroads like Union Pacific Corp. UNP and Kansas City Southern KSU. Moreover, Canadian Pacific’s high debt levels are also concerning.

A Stock to Consider

With Canadian Pacific likely to disappoint, investors interested in the transportation space may consider the following stock. This is because our model shows it possess the right combination of elements to post an earnings beat this quarter.

American Airlines Group AAL has an Earnings ESP of +5% and a Zacks Rank #3. The company, which will release its fourth-quarter results on Jan 27, has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 20.48%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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