Canadian Pacific Kansas City CP is bolstered by robust cost-cutting initiatives, which boost its operating efficiencies. The customer-friendly approach also bodes well for the company. However, CP is grappling with economic uncertainties.

Factors Favoring CP

Canadian Pacific's proactive cost-cutting initiatives are commendable, resulting in robust operational efficiencies. In the fourth quarter of 2024, total operating expenses fell by 1% year over year. Expenses on compensation and benefits, accounting for 26.8% of the total operating expenses, fell by 18% year over year. Moreover, in the same period, locomotive productivity rose 1% year over year, while fuel efficiency enhanced by 2% as compared with the fourth-quarter 2023 actuals, highlighting CP's commitment to operational excellence and sustainability.

Canadian Pacific's strong dedication to safety, a core aspect of its value proposition, is evident in its progress. In the fourth quarter of 2024, the company achieved a notable improvement in its personal injury frequency, reducing it to 0.84, down from 1.13 in the same period of 2023.

CP’s commitment to rewarding its shareholders through dividends amid uncertainties reflects its financial confidence. With dividend payouts increasing from C$507 million in 2021 to C$707 million in 2022 and 2023, the company’s financial growth and proactive approach to rewarding shareholders are underscored. In the fourth quarter of 2024, CP paid out a total dividend of 177 million and a quarterly dividend of 19 cents per share to its shareholders.

CP: Key Risks to Watch

CP is grappling with volume-related woes that have hindered its performance in several key sectors. For example, U.S. coal volumes dropped by 8% year over year, mainly due to a specific customer outage, directly impacting both revenues and volume. In the potash sector, despite solid demand, volumes declined 7% year over year as a result of a strike and unfavorable weather conditions that disrupted shipments.

Moreover, the Metals, Minerals and Consumer Products sector saw a 5% year-over-year drop in volumes, driven by a softer demand environment and production challenges at a customer’s facility. These challenges have created significant headwinds for the company.

Owing to such headwinds, the company’s shares have declined 11.9% compared with its industry’s fall of 11% over the past year.

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CP’s Zacks Rank

CP currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors interested in the Zacks Transportation sector may consider Golar LNG Limited GLNG and SkyWest SKYW.

Golar LNG currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  GLNG has an expected earnings growth rate of 16.1% for the current year.

The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average beat of 30.2%. Shares of GLNG have surged 87.1% in the past year.

SkyWest currently sports a Zacks Rank #1 and has an expected earnings growth rate of 16% for the current year.

The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 16.7%. Shares of SKYW have climbed 57.6% in the past year.

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This article originally published on Zacks Investment Research (zacks.com).

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