Here's Why Investors Should Retain Canadian Pacific Stock for Now

Canadian Pacific Kansas City CP benefits from strong operational efficiencies and shareholder-friendly initiatives. Its customer-centric approach further strengthens its market position. However, the company faces challenges from rising operating expenses and strained liquidity.

Factors Favoring CP

CP’s first-quarter performance reflects strong operational execution and momentum heading into 2025. With revenues up 8% to $3.8 billion, driven by 4% volume growth and a 150-basis-point improvement in the operating ratio to 62.5, the company is clearly optimizing both scale and efficiency. Delivering industry-best earnings growth of 14%, with earnings per share at $1.06, further reinforces the strength of its integrated business model post-merger.

Canadian Pacific's strong dedication to safety, a core aspect of its value proposition, is evident in its progress. In the first quarter of 2025, the company achieved a notable improvement in its personal injury frequency, reducing it to 0.98, down from 1.14 in the same period of 2024.

CP’s commitment to rewarding its shareholders through dividends amid uncertainties reflects its financial confidence. The 20% increase from $0.19 to $0.228 per share demonstrates the strength of its post-merger performance following the integration with Kansas City Southern. By prioritizing debt repayment and now enhancing shareholder returns, Canadian Pacific signals disciplined financial management and long-term value creation. In the first quarter of 2025, CP paid out a total dividend of $177 million and a quarterly dividend of 19 cents per share to its shareholders.

Owing to such tailwinds, the company’s shares have risen 12.8% compared to its industry’s fall of 2.7% over the past year.

CP: Key Risks to Watch

Canadian Pacific is facing significant financial pressure due to elevated operating costs and weak liquidity. In the first quarter of 2025, the company’s operating expenses remained high, registering a year-over-year increase of 4.5%. This uptick was primarily driven by a 5% rise in fuel expenses and a 24.2% year-over-year increase in material expenses.

Moreover, the company exited the March-end quarter with a current ratio (a measure of liquidity) of 0.81. A current ratio of less than 1 is not desirable as it indicates that the company may not hold sufficient cash to meet its short-term obligations.

CP’s Zacks Rank

CP currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors interested in the Transportation sector may consider Copa Holdings CPA and Ryanair RYAAY.

CPA currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CPA has an expected earnings growth rate of 14.3% for the current year. The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average beat of 5.5%. Shares of CPA have risen 22.8% year to date.

RYAAY currently carries a Zacks Rank of #2 (Buy).

RYAAY has an expected earnings growth rate of 30.5% for the current year. The company has a mixed earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in two of the trailing four quarters and missed twice, delivering an average beat of 46.6%. Shares of RYAAY have rallied 32.1% year to date.

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This article originally published on Zacks Investment Research (zacks.com).

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