29 June 2007
Buybacks at CNR and CPR
With a little more than three weeks before CNR and CPR report
second-quarter results, the early chatter is about leverage and more aggressive buybacks underpinning higher share prices.
Scotia Capital analyst James David writes that along with the numbers, Canadian National Railway Co. will likely renew its formal
mid-2007 to mid-2008 share buyback program, and "could become more aggressive."
CNR previously indicated that it would likely borrow up to $800-million in 2007 to bolster its estimated
$800-million in free cash flow in support of up to $1.6-billion in share buybacks for calendar 2007.
But predicting 2008 free cash flow of around $1-billion, and taking into account CNR's "willingness to lever,"
the implication for the calendar 2008 buyback "could be even more material," he writes in a new report.
While his one-year target price is $72, there are several net debt-to-EBITDA scenarios that could lift the
target to $77.
Same over at Canadian Pacific Railway Ltd., where Mr. David points to "management's tone that there is room for additional
leverage to support share buybacks."
While he has a one-year target price of $81 for CRP, he forecasts a potential one-year target of $91 "in
an aggressive leverage scenario."
In TSX trading Friday afternoon, CNR is up 24 cents to $53.79 and CPR is up 6 cents to $72.67.
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