CANADIAN PACIFIC RAILWAY LTD. $86 - Toronto symbol CP

CANADIAN PACIFIC RAILWAY LTD. $86 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.3 million; Market cap: $14.7 billion; Price-to-sales ratio: 2.7; Dividend yield: 1.6%; TSINetwork Rating: Above Average; www.cpr.ca) earned $103 million, or $0.60 a share, in the three months ended June 30, 2012. That’s down 19.5% from $128 million, or $0.75 a share, a year earlier.

A nine-day strike by CP’s locomotive engineers, conductors and yard workers cut its earnings by around $0.30 a share in the latest quarter. In addition, CP paid severance costs to its previous chief executive and other expenses related to the hiring of its new CEO. Without these items, CP would have earned $1.20 a share.

CP is benefiting from a plan to improve its efficiency with new locomotives, upgraded tracks, and software that optimizes train loads and speeds. This was the main reason for the higher earnings.

Even with the strike, revenue rose 8.0%, to $1.4 billion from $1.3 billion. However, CP’s operating ratio worsened to 82.5% from 81.7% a year ago.
That’s mainly due the added costs of the strike.

The company should earn $4.35 a share in 2012, and the stock trades at 19.8 times that forecast. The $1.40 dividend yields 1.6%.

CP is still our #1 buy for 2012.

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