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An analysis of Canadian Pacific Railway, which was bought in bulk in 3Q by billionaire investor Bill Ackman

Jamie Cameron
26. 11. 2022
4 min read

The 13F forms have been freely available for a few days now, which means individual investors can study what the big players were buying in Q3 of this year. Here's a look inside the portfolio of one of today's most famous investors, Bill Ackman.

Ackman is an American billionaire investor and is the founder and CEO of Pershing Square Capital Management

Who is Bill Ackman

Bill Ackman is the founder and CEO of Pershing Square Capital Management, a hedge fund management company. His investment approach makes him an activist investor. As of 2022, Ackman's net worth was estimated by Forbes to be $2.8 billion.

As of 2022, Pershing Square's stock positions are down about 22% year-over-year. However, because of Ackman's hedge, his fund is only down about 8% as of November 17, 2022. As for Ackman's hedge, his firm made about $2 billion from Ackman's bet that interest rates would rise.

As for inflation, Ackman said inflation could be structurally higher than it has been historically. Ackman says, "We don't believe the Fed will bring it back to 2 percent." Because of deglobalization, Ackman thinks outsourcing to cheap labor markets may not be so cheap in the future. Ackman also thinks switching to alternative energy could be expensive.

Pershing Square Capital Management Portfolio

As for Bill Ackman's bets, Pershing Square had a position in six stocks as of September 30 - The Howard Hughes Corporation, Canadian Pacific Railway Limited, Hilton Worldwide Holdings, Restaurant Brands International, Chipotle Mexican Grill, and Lowe's Companies.

Pershing Square Capital Management increased its stake in Canadian Pacific Railway Limited by 418% in the third quarter and ended the period with more than 15.2 million shares valued at nearly $1.02 billion.

Bill Ackman commented on Canadian Pacific Railway Limited in a letter to investors in August.

CP is a high-quality, inflation-protected business led by a best-in-class management team that operates in an oligopolistic industry with significant barriers to entry. With an improving outlook for volume and pricing combined with the upcoming transformational acquisition of Kansas City Southern ("KCS"), we believe CP's prospects are bright.

Bill Ackman significantly increased his position in Canadian Pacific Railway Limited in 3Q

Canadian Pacific Railway Limited $CP-1.2%

Canadian Pacific Railway Limited , together with its subsidiaries, owns and operates transcontinental freight railroads in Canada and the United States. The company transports commodities including grain, coal, potash, fertilizer and sulphur, and freight commodities such as energy, chemicals and plastics, metals, minerals and consumer, automotive and forest products. It also carries intermodal freight including retail goods in overseas containers. The company offers rail and intermodal transportation services through a network of approximately 13,000 miles that serves commercial centers in Quebec and British Columbia, Canada; and the Northeast and Midwest regions of the United States. Canadian Pacific Railway was founded in 1881 and is headquartered in Calgary, Canada.

CP's stock has risen 131.13% over the past 5 years
  • Industry.
  • Regions: Canada, USA
  • Number of employees: 13,087
  • Business : Transportation of goods, primarily by rail
  • Competition: CSX, Canadian National Railway, Norfolk Southern and Union Pacific

Financials

For the third quarter, the company reported adjusted earnings per share of C$0.97 on revenue of C$2.312 billion, compared to C$0.88 and C$1.942 billion in 2021. Going forward, Ackman thinks the merger between Canadian Pacific Railway Limited and Kansas City Southern could create additional growth opportunities.

CP's Q3 results

Dividends

Canadian Pacific Railway Limited has been paying a dividend for 20 years. Over the past 5 years, this dividend has increased annually at an average rate of 12.57% and is currently $0.76, a 0.7% yield. The company also boasts a healthy payout ratio of 20%.

The company's valuation

The market capitalization as of 11/23/2022 was $75.205 billion. Including net debt, the enterprise value (EV) of the entire company was $88.69 billion.

Thus, in terms of EV/EBITDA multiple, CP trades at 27.21 times trailing 12-month EBITDA, or 27 times 2023 EBITDA earnings expectations.

The P/E ratio stands at 34.38 times against earnings per share of USD 2.34 for the last 12 months, or 23.8 times against the expected value for 2023.

Analyst recommendations

CP stock price prediction

Based on the price targets of 14 Wall Street analysts, the 12-month average price target for CP stock is $79.97 with a high forecast of $87.25 and a low forecast of $58.91. The average price target represents a change of -0.58% from the last price target of $80.44.

DISCLAIMER: All information provided herein is for informational purposes only and is in no way an investment recommendation. Always do your own analysis.

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