(The following story by Scott Deveau appeared on the Financial Post website on April 7, 2009.)
OTTAWA With the country's largest railways set to report their first-quarter earnings in two weeks, Fadi Chamoun, UBS analyst, is predicting Canadian Pacific Railway Ltd. (CP/TSX) will be hit harder by volume declines in the first three months of the year than its larger rival, Canadian National Railway Co. (CNR/TSX).
CP, the country's second largest railway, is expected to report earnings per share of 37¢ for the quarter on April 23, a 51% year-over-year decline. CP's coal and potash shipments have been hit particularly hard during the quarter, and are expected to have led to up to a 21% volume decline compared to last year.
In addition, the railway issued 12.6-million shares during the quarter that is expected to dilute its EPS, compounding the negative impact of high operating/financial leverage, he added.CN, on the other hand, is expected to report earnings of 62¢ a share for the first quarter on April 20, up 1.4% from last year. Mr. Chamoun said he expects the railway to have offset up to a 14% decline in volumes during the quarter with pricing growth, a lower share count, and easier comparables to last year.
"We maintain our 'buy' rating on both railroads given inexpensive valuation and positive leverage to an expected economic recovery in late 2009," said Mr. Chamoun, adding he prefers CN of the two.
