CP

The economic recovery continues to increase CP Rail’s shipments of forest products, coal, potash, grain, steel and cars. This new growth and the company’s aggressive cost cuts almost doubled its earnings in the latest quarter. Ongoing capital spending should help it take even better advantage of rising demand. CANADIAN PACIFIC RAILWAY LTD. $62.60 (Toronto symbol CP; Shares outstanding: 168.7 million; Market cap: $10.6 billion; SI Rating: Average; Dividend yield: 1.7%) ships freight over a rail network between Montreal and Vancouver. CP Rail’s U.S. subsidiaries connect its Canadian lines to hubs in the midwest and northeast. In the three months ended June 30, 2010, CP’s revenue rose 19.7%, to $1.23 billion from $1.03 billion. Earnings rose 23%, to $166.6 million, or $0.99 a share, from $135.5 million, or $0.81. If you exclude all unusual items, CP’s per-share earnings jumped 95.7%, to $0.92 from $0.47. The company’s $4.2 billion of debt is down 10.6% from a year ago, and is a manageable 39.6% of its market cap....

TORSTAR CORP. $10 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 79.0 million; Market cap: $790.0 million; Price-to-sales ratio: 0.6; Dividend yield: 3.4%; SI Rating: Above Average) will participate in a restructuring of The Canadian Press (CP), which provides news and other content to Canadian newspapers, radio and TV stations. Right now, CP is a not-for-profit organization. Under this new plan, Torstar will join with CTVglobemedia (which owns The Globe and Mail) and Gesca (which owns La Presse) to convert CP into a regular corporation. Torstar did not say how much it will invest. However, the restructuring will improve CP’s long-term prospects and ensure that it continues to provide a wide variety of content to Torstar’s newspapers. Torstar is a buy.

CGI GROUP INC. $16 (Toronto symbol GIB.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 285.6 million; Market cap: $4.6 billion; Price-to-sales ratio: 1.3; No dividends paid; SI Rating: Extra Risk) continues to win new computer-outsourcing contracts. For example, the company recently signed a seven-year deal with Ontario’s Beer Store retail chain. Under the contract, CGI will help The Beer Store improve the efficiency of its distribution network. This will help the Beer Store expand its sales and earnings by avoiding shortages of top-selling beer brands. The company did not reveal the contract’s exact value, but it did say that it is a multi-million-dollar deal. As well, CGI will manage the Atlantic Lottery Corp.’s data centre and provide related support services. This seven-year deal is worth $125 million. These contracts are tiny next to CGI’s annual revenue of $3.8 billion. But long-term deals like these give it steady, predictable revenue streams. They also help CGI build customer loyalty, and sell more services to new clients....

TRANSALTA CORP. $20.17 (Toronto symbol TA; Shares outstanding: 218.8 million; Market cap: $4.4 billion; SI Rating: Average; Dividend yield: 5.8%) dropped 5% following the federal government’s June 23 announcement that it plans to phase out coal-fired power plants by around 2025. TransAlta uses coal to generate 57% of its power. Under the proposals, TransAlta would have to close its coal-fired plants when they reach 45 years of age or when their power-purchase contracts with provinces expire, whichever is later. The new rules would prevent TransAlta from extending the lives of these plants unless it can lower carbon emissions to the same level as natural-gas-fired plants. Ottawa’s plan is still in its early stages, and much could change before the new rules come into effect in 2011. Still, TransAlta feels it can replace some of its older plants with gas-fired facilities. It’s also developing new clean-coal and carbon-storage systems that would help it comply with the new standards....

Canadian Pacific Railway (symbol CP on Toronto) has long been a cornerstone of the Canadian economy. CP was incorporated on February 16, 1881. The company began cross-Canada train service after the rail link to the Pacific coast was famously completed with the driving of the “last spike” at Craigellachie, British Columbia, on November 7, 1885. Prime Minister John A. MacDonald’s government built the rail line to satisfy a condition of British Columbia’s entry into Confederation in 1871....

PLEASE NOTE: Our next Hotline will go out on Friday, July 9, 2010. GENNUM CORP., $6.60, Toronto symbol GND, earned $4.1 million, or $0.12 a share (all amounts except share price in U.S. dollars) in the three months ended May 31, 2010. That’s a big improvement over the $1.1 million, or $0.03 a share, it lost a year earlier. Gennum makes chips and other electronic equipment that lets television broadcasters store, edit and transfer video signals without losing picture quality. It also makes chips that improve the flow of data inside computer networks....

CANADIAN PACIFIC RAILWAY LTD. $58.16 (Toronto symbol CP; Shares outstanding: 168.6 million; Market cap: $9.8 billion; SI Rating: Average; Dividend yield: 1.9%) has raised its quarterly dividend by 9.1%, to $0.27 a share from $0.2475. The new annual rate of $1.08 a share yields 1.9%. The company also added $70 million to its 2010 capital spending plans. It will now spend $750 million to $800 million on upgrades, including improving tracks and buying new trains. That’s up from $724.1 million in 2009. The higher spending will help CP take advantage of rising demand for the goods it ships, such as automobiles and fertilizers. CP Rail is a buy.

The Greek bailout and the poor financial state of major countries rattled the market again this week. Everybody agrees that high government debt and deficit spending are serious problems that must be fixed, but opinions differ about urgency. The biggest pessimists see government debt-and-deficits as terminal conditions that are too far advanced to be reversed. Others see the debt-deficit as more akin to a serious case of high blood pressure – a risk factor, not a death sentence. My view is that a combination of budget cuts, economic growth and a dash of inflation may be enough to gradually unwind the debt-and-deficits problem over a period of years if not decades....

CANADIAN PACIFIC RAILWAY LTD. $57.42 (Toronto symbol CP; Shares outstanding: 168.5 million; Market cap: $9.7 billion; SI Rating: Average; Dividend yield: 1.7%) reports that its earnings per share jumped 87.5%, to $0.60 from $0.32, in the three months ended March 31, 2010. These figures exclude one-time items. The improving North American economy is increasing demand for CP’s rail services. The company has also cut its costs. That helped fuel the big rise in its earnings. CP’s revenue rose 5.2%, to $1.2 billion from $1.1 billion a year earlier. Revenue gains from fertilizer, automotive and consumer and industrial products offset declines in grain, coal and forest products....

CGI GROUP INC., $15.04, Toronto symbol GIB.A, is Canada’s largest provider of computer-outsourcing services. These services help its customers automate certain routine functions, such as accounting and buying supplies. That lets CGI’s clients focus on their main businesses, and improve their efficiency. The company continues to renew existing contracts and win new ones. CGI added $1.1 billion of new orders in its second quarter, which ended March 31, 2010. Its backlog is now $11.4 billion, or 3.1 times its annual revenue. Even with the jump in new orders, CGI’s revenue fell 4.0% in the latest quarter, to $910.4 million from $948.3 million a year earlier. CGI gets roughly 40% of its revenue from outside of Canada, mainly the U.S., so the higher Canadian dollar hurt its revenue. Without the negative impact of exchange rates, revenue would have risen 3.5%....