• Smart Cash
  • Performance
  • Log in
  • Get Started
ResearchA closer look: Canadian Pacific

A closer look: Canadian Pacific

Jan 25, 2023

Holding Name: Canadian Pacific Railway (CP)

Strategy: Opportunities

Percent weighting of strategy: ~5.5%

TLDR: The Kansas City Southern merger was put into question following a recent letter from the DOJ questioning the transaction. We believe this falls outside of the DOJ’s jurisdiction and they won’t be able to derail this key component of our investment thesis.

Business overview: Canadian Pacific Railway Ltd (CP) is an operator of transcontinental freight railway. It offers rail and intermodal transportation services connecting the business centers of Canada from Quebec, Montreal to British Columbia, Vancouver and the US Midwest and Northeast regions. 

The company transports bulk commodities and merchandise freight while serving as the primary grain shipper for the west Canada and northern US regions. Canadian Pacific’s top 3 largest segments are grains (21%), intermodal (21%), and energy/potash (19%) with strong growth coming from the Port of Vancouver.

The company operates a diversified business model while generating revenues around the globe. Approximate revenue breakdown can be characterized below:

Global Revenue: 34%

  • Asia: 30%

  • Europe: 4%

Domestic: 34%

  • Intra-Canada: 21% 

  • Intra-US: 13%

Cross-Border: 32%

  • Canada to US: 22%

  • US to Canada: 8%

  • Mexico: 2%

Why we own it: Canadian Pacific is a best in class franchise with strong competitive moats, dominant market share, and stable/increasing margin profiles. Given that they operate in a duopoly with Canadian National (hint: another holding in Offshore!), Canadian Pacific has significant pricing power advantages as seen by the 3-4% pricing CAGR (annualized growth rate) over the past 15 years.

Canadian Pacific has proven to be a defensible business model with a solid track record of robust margin expansion and operational execution. CP’s diversified business operations should enable the company to deliver GDP+ growth along low double digit earnings over the next several years. 

CP generates attractive returns on invested capital (they’re efficient when investing capital back into their business), strong free-cash-flow and a compelling share repurchase and dividend program. Combining this with the recent acquisition of Kansas City Southern (KSU), we believe the company will be able to accelerate growth and unlock more than $1 billion in EBITDA per year in growth opportunities.

What’s the latest: The Department of Justice sent a letter to the Surface Transportation Board (STB) on January 24th reiterating its cautious view on the proposed merger between Canadian Pacific and Kansas City Southern. The letter emphasized the importance of protecting and promoting competitions in the railroad industry. 

Although something to monitor, we believe that the letter is a non-event and have been following merger proceedings diligently (a key part of our thesis). The Department of Justice conceded that the STB has jurisdiction over the matter and the STB has been accommodative of the merger following a comprehensive review of all materials. TLDR: the STB has full control over the ruling and they have been consistently positive on the deal’s closure.

Sign posts moving forward: We will be closely monitoring any news that comes from the DOJ’s recent letter to the STB as merger synergies are key to our growth thesis over the medium term. 

The new labor regulation that took effect in December is important and we will be getting a read through on the additional overhead costs and its corresponding impact on margins. We’ll also be monitoring the contract book repricing for FY23 and the volume growth trends for Kansas City Southern and they added US-Mexico rail capacity in the second half of 2022. 

Interesting alt data to follow includes, easing auto chip shortage trends while closely watching the recovery in Canadian grain crops.

The content contained in this material is intended for general informational purposes only and is not meant to constitute legal, tax, accounting, solicitation of an offer, or investment advice.


Cash Management

Smart Cash

Smart Cash FAQs

Cash Options

Get Smart Cash


© Copyright 2024 Titan Global Capital Management USA LLC. All Rights Reserved.

Titan Global Capital Management USA LLC ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept and agree to Titan’s Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities or investment products. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Account holdings and other information provided are for illustrative purposes only and are not to be considered investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.

Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.

Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.

The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit www.titan.com/legal for applicable terms and conditions and important disclosures.

Cryptocurrency advisory services are provided by Titan.

Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.

Contact Titan at support@titan.com. 508 LaGuardia Place NY, NY 10012.