Published on 22/12/2022 at 09:29
The geographic canvas of CP’s new network will be much broader and will provide better coupling between the origin and destination of commodities and key markets. (Photo: 123RF)
What to do with Canadian Pacific, Alithya and Nike titles? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.
Canadian Pacific (CP, $101.62): a potentially transformative transaction
The acquisition of Kansas City Southern (KCS) by Canadian Pacific (CP) has the potential to transform the North American rail landscape, ATB Capital Markets believes.
The US$31 billion transaction, concluded in December 2021, is currently in the approval process before the US Surface Transportation Board, said analyst Chris Murray. He sees this acquisition as having a transformative potential for the company because it would establish the foundations of the first rail carrier with a network that would cover Canada, the United States and Mexico, while allowing as much for CP as for KCS. to take advantage of economies of scale and densification of their rails.
Currently, the base of the two networks is in Kansas City, and neither of them overlaps the other. The geographic web of the new network will be much wider and will provide better coupling between the origin and destination of goods and key markets.
ATB expects the transaction to be approved in the first quarter of 2023, given the complementarity of the two networks and the positive environmental impact due to the possible conversion of volumes by truck to volumes by train.
Management also estimates that the acquisition should generate $1 billion in synergies over the first three years. Chris Murray believes that these are rather conservative forecasts and sees good long-term potential thanks to the extent of cross-selling between the two entities, especially in terms of intermodal volumes, management capacities as well as ‘with the underlying economic reality of the rail industry, which should serve as an anchor for long-term value creation.
ATB starts its CP tracking with a price target of $120 and a forecast of the stock outperforming companies in its industry.