Canadian Pacific Kansas City’s CP fourth-quarter top line grew by 3% year over year, on yield gains (longer lengths of haul) and synergies related to the merger with Kansas City Southern, partly offset by labor-related port disruption for coal and intermodal. Profitability also improved relative to a year ago.
Key Morningstar Metrics for Canadian Pacific Kansas City
- Fair Value Estimate: C$104.00
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
Why it matters: Revenue met our forecast, as better-than-expected total yield (revenue per carload) offset slightly weaker-than-expected potash volumes linked to port disruption and weather. The total adjusted margin came in slightly better than we anticipated.
- Carload volume (excluding intermodal) fell by 1% on port headwinds for coal. Otherwise, merger synergies are ramping, grain is up on a better harvest, and automotive is still growing on new business wins. Port issues hit international intermodal, but we expect growth in 2025.
- Canadian Pacific’s adjusted operating ratio (expenses/revenue) improved 160 basis points year over year to 57.1%, likely due to leverage from revenue growth, accretive core pricing on carload business, and incremental network efficiency gains.
The bottom line: We don’t expect to materially alter our fair value estimate for Canadian Pacific, save for a slight increase from the time value of money.
- The shares have been trading in borderline overvalued territory due to elevated optimism over significant merger-related growth opportunities.
Coming up: For 2025, management expects mid-single-digit volume growth (in revenue ton miles) and 12%-18% adjusted earnings per share growth. The firm’s guidance didn’t deviate materially from our forecast.
- We may temper our intermodal volume forecast, given tough international comps in the second half of 2025. We expect growth in both international and domestic volumes, driven by the firm’s nascent single-linehaul corridors formed by the merger.
- We’ve been assuming adjusted OR improvement to roughly 59% in 2025 on synergy-related volume growth and core pricing ahead of cost inflation. We don’t expect to materially alter that assumption.
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