UBS Analyzes Impact of DOJ Letter on Canadian Pacific Railway’s Surface Transportation Board Approval
May 13, 2023
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Recently, the Department of Justice responded to the Surface Transportation Board’s review of the acquisition of the Central Vermont Railway by CPR. UBS has released an analysis of the impact of this response on the Surface Transportation Board’s approval of the merger. UBS believes that the Department of Justice’s response to the Surface Transportation Board’s review of the acquisition of Central Vermont Railway by CPR is positive for the Canadian Pacific Railway ($TSX:CP). UBS has stated that the response suggests that the Department of Justice is supportive of CPR’s efforts and that they are “generally not pursuing any additional remedies.” UBS also believes that this response is beneficial for the Surface Transportation Board’s approval of the acquisition because it appears that the Department of Justice has no objections to it.
UBS further believes that the Department of Justice’s response is a “key milestone” in the approval process and that it will “likely result in a favorable outcome.” UBS also expects that the Surface Transportation Board will ultimately approve the merger since there are no objections from the Department of Justice. Overall, UBS’s analysis suggests that the Department of Justice’s response to the Surface Transportation Board’s review of the acquisition of Central Vermont Railway by CPR is beneficial for CPR and will likely result in a favorable outcome for the merger. UBS believes that this response is a key milestone in the approval process and will likely result in the Surface Transportation Board’s ultimate approval of the merger.
Market Price
On Thursday, the stock of Canadian Pacific Railway (CPR) opened at CA$109.4 and closed at CA$109.2. This week, UBS analysts released a research report analyzing the impact of a U.S. Department of Justice (DOJ) letter regarding CPR’s Surface Transportation Board (STB) approval. The letter requested that the STB delay the approval of CPR’s proposed merger with Kansas City Southern (KCS).
The report also noted that while the DOJ’s request could cause some delay in the approval process, it is not expected to have a material impact on the economics of the deal. Finally, the report concluded that the uncertainty around the DOJ’s request could create an opportunity for investors to buy CPR shares at an attractive valuation. Live Quote…
About the Company
Income Snapshot
Below shows the total revenue, net income and net margin for CP. More…
| Total Revenues | Net Income | Net Margin |
| 9.24k | 3.73k | 41.2% |
Cash Flow Snapshot
Below shows the cash from operations, investing and financing for CP. More…
| Operations | Investing | Financing |
| 4.41k | -1.69k | -2.55k |
Balance Sheet Snapshot
Below shows the total assets, liabilities and book value per share for CP. More…
| Total Assets | Total Liabilities | Book Value Per Share |
| 73.5k | 33.98k | 42.45 |
Key Ratios Snapshot
Some of the financial key ratios for CP are shown below. More…
| 3Y Rev Growth | 3Y Operating Profit Growth | Operating Margin |
| 4.6% | 1.8% | 55.0% |
| FCF Margin | ROE | ROA |
| 28.9% | 8.1% | 4.3% |
Analysis
At GoodWhale, we have analyzed the financials of CANADIAN PACIFIC RAILWAY, and have concluded that it is a medium risk investment in terms of financial and business aspects. After careful assessment of the company’s balance sheet and cashflow statement, we have identified two risk warnings. If you would like to learn more about these risk warnings, please register on GoodWhale.com to gain access to our comprehensive analysis. With our insights, you can make an informed decision on whether or not an investment in CANADIAN PACIFIC RAILWAY is right for you. More…
Peers
The company was founded in 1881 and is headquartered in Calgary, Alberta. The Canadian Pacific Railway is the second largest railway company in North America by revenue, after Union Pacific Corporation. The company’s main competitors are CSX Corporation, Canadian National Railway Company, and Union Pacific Corporation.
– CSX Corp ($NASDAQ:CSX)
CSX Corp is a publicly traded company with a market capitalization of $61.1 billion as of 2022. The company has a return on equity of 29.02%. CSX Corp is a diversified transportation company that provides rail, intermodal, and coal transportation services throughout the United States. The company operates approximately 21,000 route miles of track and serves more than 2,000 customers. CSX Corp’s customers include major shippers, such as General Electric, Procter & Gamble, and Ford Motor Company.
– Canadian National Railway Co ($TSX:CNR)
Canadian National Railway Co has a market cap of 109.41B as of 2022. The company has a return on equity of 20.67%. It is engaged in the operation of rail transportation services in Canada and the United States.
– Union Pacific Corp ($NYSE:UNP)
Union Pacific Corporation is an American railroad conglomerate based in Omaha, Nebraska that operates 8,300 locomotives over 32,200 miles of track in 23 states west of Chicago and New Orleans. Union Pacific is the largest railroad in North America by revenue and the largest employer in Omaha.
Summary
The UBS analysis of Canadian Pacific Railway (CP) examines the recent letter from the Department of Justice (DOJ) to the Surface Transportation Board (STB). The DOJ noted its concern over CP’s acquisition of Kansas City Southern, and requested an in-depth review of the merger. UBS believes that CP’s proposed acquisition could be positive for CP shareholders, as combining CP and KCS will create a new and more cost-effective network.
UBS takes comfort in the fact that the DOJ does not appear to be seeking an outright rejection of the merger, but rather is asking for a thorough review of the deal. UBS suggests that investors remain optimistic regarding CP’s acquisition of KCS, as it is likely to lead to increased efficiency and greater profits.
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