25 October 2007
CP Rail Earnings Expected to Slow Due to Loonie
Canadian Pacific Railway Ltd. should expect the steam to be taken
out of its fourth quarter earnings and into 2008 due to the strong loonie, according to UBS analyst Fadi Chamoun.
Like its larger domestic rival Canadian National Railway Co., which reported a softer-than-expected third quarter this
week, Mr. Chamoun said he expects the loonie to negatively impact CP's earnings per share for the fourth quarter by 6 cents, and by 11
cents a share in 2008. The strong dollar should decrease Canadian exports to the U.S. and reduce the value of CP's U.S. revenue,
including those from its recent acquisition of DM&E.
Mr. Chamoun said now he expects an $1.19 earnings per share in the third quarter (which CP will report Tuesday), $1.22 per share in the
fourth quarter, and $4.80 per share in the 2008, down from his previous estimate of $5.05. He also lowered his price target from $83
to $80 a share, but kept his "buy" rating on the stock.
"Our longer term forecast is lowered to a lesser degree as we expect pricing growth and volume mix changes to compensate for a
stronger [Canadian dollar] over time," he said in a note to clients.
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