Zacks_Analysts' Blog : Canadian Pacific Invests in Dakota - Analyst Blog

Canadian Pacific Railway Limited (CP) reported investment of $100 million in North Dakota between 2010 and 2012. The investments will facilitate network expansion and increase rail service to cater to growing traffic demand in the region.

For 2011, the company’s investment program includes hiring of 70 new employees to expand train crew base and fostering 18% growth in its workforce in North Dakota.

Additionally, other points included in the 2011 investment program include allocation of new Superintendent of Operations territory focusing on traffic between Enderlin and Portal, expanding capacity in Newtown, Portal and Carrington subdivisions within next two years on the including yard track extensions in Max and Flaxton, and installation of a new runaround track in Newtown.

Canadian Pacific has increased its budget for maintenance work on the Newtown subdivision, particularly for the installation of more than 17 miles of rail replacement between Drake and Max including upgrades to 41 crossings. Moreover, it will install snow fence and grading projects to reduce winter snow drifting between Drake and Max. 

North Dakota is a growing market opportunity for Canadian Pacific with its increased grain production, vast oil deposits and strong growth in ethanol. Canadian Pacific’s initiatives to enhance infrastructure, increased employee base and improve fluidity are expected to provide continued growth in the region.

Additionally, we believe the investment will lead to increased profitability and improve the company’s route structure and network. Further, the growing demand for the company’s product line and rising coal volumes resulting from an agreement with Teck Resources Limited (TCK) will aid profitability in the future.

However, Canadian Pacific faces significant competition for freight transportation in Canada and the U.S., including competition from other railways companies like Canadian National Railway Company (CNI) that operates in almost the same areas as Canadian Pacific.

This could increase competition and adversely affect the company’s performance. Additionally, the company’s freight volumes and revenues are largely dependent upon the performance of the North American and global economies, which remains uncertain.

We are currently maintaining our long-term Neutral recommendation on Canadian Pacific supported by a Zacks # 3 Rank (Hold).