CANADIAN PACIFIC KANSAS CITY LTD/CN (CP): what the price requires
At today's price, CANADIAN PACIFIC KANSAS CITY LTD/CN (CP) is priced for +20.6% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-19 · Source: https://boothcheck.com/report/CP
Headline
| Field | Value |
|---|---|
| Ticker | CP |
| Company | CANADIAN PACIFIC KANSAS CITY LTD/CN |
| Current price | $91.39/sh |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin today | 35.4% |
| Implied growth | 20.6% |
| Multiple paid | 22x operating income |
Solve inputs: computed at a 9.4% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.3pp.
How unusual the bet is: within-range (limited comparison data)
| Reference | Value |
|---|---|
| sustained it ~5 years at this level | 37% |
| implied end-window share | 0% |
Valuation X-Ray
Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 2.60x | 5 | expensive |
| Earnings | 2.57x | 3 | expensive |
| Relative | 1.85x | 5 | expensive |
| Growth | 1.49x | 3 | expensive |
Families that call it expensive: Asset, Earnings, Relative
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.3%); the inversion above states its own rate.
Per-Model Detail (n=16)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $5.99 | 15.26x | yes | FCF base $1.5B, growth 1% (input: historical growth), terminal g 1.2%, WACC 8.4%, 5yr projection |
| DCF Exit Multiple | Growth | $67.91 | 1.35x | yes | Exit EV/EBITDA: 15.6x / 17.6x / 19.6x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $65.36 | 1.40x | yes | P/E 20x (static sector reference · 2026-04), scenarios: 16.9x / 20.0x / 23.1x (bear / base = reference held flat / bull), EV/EBITDA 13x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $36.12 | 2.53x | yes | BV/sh $38.07, ROE (TTM) 8.8%, ke 9.3% |
| Two-Stage Excess Return | Asset | $35.19 | 2.60x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $61.26 | 1.49x | yes | Rev $11.0B, growth 1% (input: historical growth; tapered), Terminal P/S: 6.3x / 7.4x / 8.6x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $39.53 | 2.31x | yes | EPS $3.29, growth 10% (input: historical EPS growth), PEG=2.74 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $15.26 | 5.99x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $3.26B × (1−25%) / WACC 8.4% → EPV (no growth) |
| Residual Income | Asset | $35.03 | 2.61x | yes | BV $38.07 + 5yr PV of (ROE (TTM) 8.8% − Kₑ 9.3%) × BV; BV grows 5.7%/yr |
| Graham Number | Asset | $53.12 | 1.72x | yes | √(22.5 × EPS $3.29 × BVPS $38.07) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $63.12 | 1.45x | yes | EBITDA $5.57B × sector EV/EBITDA 13.0x |
| FCF Yield | Earnings | $0.78 | 117.17x | yes | FCF $1525.0M / Kₑ 9.3% — zero-growth perpetuity (excluded from median) |
| SBC-Adj FCF Yield | Earnings | $0.01 | 9139.00x | yes | SBC-adj FCF $1.42B (FCF $1.52B − SBC $0.11B) capitalized at Kₑ (excluded from median) |
| Ben Graham Formula | Earnings | $78.67 | 1.16x | yes | EPS $3.29 × (8.5 + 2×10.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $6.37 | 14.35x | yes | BV $38.07 × (ROIC 1.4% / WACC 8.4%) |
| P/Sales Sector | Relative | $24.56 | 3.72x | yes | Revenue $11.02B × sector P/S 2.0x |
| PEG Fair Value | Relative | $49.40 | 1.85x | yes | EPS $3.29 × (PEG 1.5 × growth 10.0% (input: historical EPS growth)) → PE 15.0x |
| Earnings Yield | Earnings | $35.61 | 2.57x | yes | EPS $3.29 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $1.1b |
| Net debt / NOPAT (after-tax) | 0.40x |
| Net debt / operating income (pre-tax) | 0.30x |
| Share count CAGR (buyback) | -1.0% |
| Burning cash | no |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- Canadian Pacific Kansas City is the only single-line railroad connecting Canada, the United States, and Mexico, the product of the 2023 Kansas City Southern merger. That unique network is the asset, and three years in management says it is outperforming expectations on revenue synergies.
- The trajectory is steady but the comps are noisy: Q1 2026 revenue was $3.7B, down 2%, while volumes measured in revenue ton-miles rose 2% and core adjusted EPS was $1.04. Full-year guidance is unchanged at mid-single-digit volume growth, double-digit EPS growth, and a sub-60 operating ratio.
- At $86.06 no valuation family reaches the price, and the inversion implies roughly 19% annual operating-income growth for five years. That is the demanding assumption: a high-quality network priced for synergy capture and pricing power to compound well above its recent revenue line.
Bull Case
Start with the direction of the earnings, because the headline revenue hides it. Q1 2026 revenue came in at $3.7B, down 2%, but that masks the real trend: volumes measured in revenue ton-miles rose 2%, and core adjusted diluted EPS reached $1.04. The revenue dip was largely fuel-surcharge and mix; the underlying franchise is moving more freight and converting it more profitably. Management held full-year guidance for mid-single-digit RTM growth, low-double-digit EPS growth, and a sub-60 operating ratio, the efficiency benchmark that separates the best railroads from the rest. The earnings trajectory points up and to the right even when a single quarter's revenue line wobbles.
The asset behind that trajectory is genuinely unique. CPKC is the only railroad with a single-line network spanning Canada, the United States, and Mexico, created by the 2023 Kansas City Southern combination. Three years in, the synergies are real: management reports the network is outperforming expectations with strong revenue synergies, operational efficiency, and record growth in grain, automotive, and intermodal. The merger filing flagged the central risk plainly, that the company "may fail to realize the anticipated cost savings, growth opportunities and synergies" (accession 0000016875-26-000008), and the operating results since are the evidence that it has been realizing them. A transcontinental single-line route is a structural advantage rivals cannot replicate, because the rail network is built and the regulatory approval for this merger was a one-time event.
The model that fits a railroad best supports the case. EV/EBITDA-relative lands near $63 and relative valuation near $65, both reasonable references for a premium operator; the depressed FCF-yield reading reflects heavy growth capex, not weak economics, because railroads spend to expand capacity and that spend is investment, not deterioration. With operating margins near 37%, a sub-60 operating ratio target, and the rare nearshoring tailwind from the Mexico connection as supply chains shift toward North America, CPKC has both pricing power and a volume catalyst. The bull case is that a one-of-a-kind network with double-digit EPS growth guidance and ongoing synergy capture earns a premium multiple, and the recent results keep validating it.
Bear Case
The bear case is about what the price is leaning on, and the answer is synergy realization that must keep compounding for years. At $86.06 (June 27, 2026) no valuation family reaches the price, and inverting it implies roughly 19% annual operating-income growth sustained for five years. The most fragile assumption baked in is that the Kansas City Southern synergies and the pricing power they enable do not just continue but accelerate the bottom line at a high-teens pace, well above the mid-single-digit volume growth the company actually guides to. Synergy capture is front-loaded by nature; the easy integration wins come first, and the law of large numbers makes each incremental synergy harder to find. If EPS growth settles into the low double digits the company guides to rather than the high teens the price implies, the multiple has to come down.
The valuation gap is wide on the methods that matter for an asset-heavy operator. The relative-multiple lens near $65 and EV/EBITDA-relative near $63 both sit well below the $86 price, the Peter Lynch screen flags it overvalued at a PEG near 2.6, and the asset-based methods cluster in the mid-$30s. Even the exit-multiple DCF near $64 lands below the price. The price is paying a premium to every standard frame, and only about 39% of comparable fast-growers have historically sustained the implied pace for five years. The earnings-power view near $15 underscores how much of the price depends on growth rather than current profit.
The operating risks are the ones the multiple cannot afford. Railroads are deeply cyclical: freight volumes track industrial production, grain harvests, and consumer goods flows, all of which swing with the economy. A recession, a weak crop year, or softer intermodal demand would hit the volume line directly. CPKC also carries net debt near $15.8B from the merger, leverage above 3x operating income, which limits flexibility if cash flow softens. The Mexico exposure that is a nearshoring tailwind is also a tariff and trade-policy risk, since cross-border freight depends on stable North American trade rules. The bet against this stock is not that the network is anything less than excellent. It is that a price implying high-teens compounding leaves no room for the cyclical, policy, and synergy-fade risks that a railroad always carries.
Valuation
At $86.06, inverting the price puts CPKC at roughly 21x company-wide operating income, which solves to about 19% annual operating growth over a five-year stage at a 9.4% cost of capital. Each percentage point of cost of capital moves the implied growth figure by about 7 points. The assumed pace runs above the company's recent revenue growth and above its own double-digit EPS guidance, so the price is leaning on synergy-driven margin expansion to bridge the gap.
The model families read the price as full across the board. The methods most appropriate for a capital-intensive railroad, EV/EBITDA-relative near $63 and relative valuation near $65, both land below the price, as does the exit-multiple DCF near $64. The asset lens clusters in the mid-$30s, and Earnings Power Value near $15 reflects through-cycle normalized EBIT. The FCF-yield reading is artificially low because heavy growth capex depresses trailing free cash flow, so it should be discounted rather than taken literally. The blended X-ray near $38 is dragged down by the asset and earnings-power figures; the operationally relevant comps sit in the low-to-mid $60s, still below the quote.
The valuation conclusion is that even on the railroad-appropriate methods, the price sits at a premium, and the premium is a bet on continued synergy capture and pricing power. If CPKC sustains low-double-digit EPS growth and drives the operating ratio below 60, a premium to peers is defensible for a unique network. If volume growth disappoints or synergies fade, the gap between the price and the low-$60s comps closes downward. The deciding variable is whether the merger keeps delivering above-trend EPS growth through the freight cycle.
Catalysts
Volume and pricing trends are the cleanest near-term read. Q1 2026 revenue ton-miles rose 2% even as headline revenue dipped 2% on fuel and mix, so the next prints test whether RTM growth accelerates toward the mid-single-digit full-year guide. Grain, automotive, and intermodal have been the growth engines; their quarterly trajectory is the signal to watch.
The operating ratio is the efficiency catalyst. Management targets a sub-60 operating ratio for the year, and progress toward that mark is what converts volume and pricing into the double-digit EPS growth the guidance promises. Each quarter's operating ratio and core adjusted EPS, $1.04 in Q1 2026, frame whether the synergy story is still compounding.
Merger synergies and nearshoring are the structural catalysts. Three years post-KCS, management says revenue synergies are outperforming; continued evidence of cross-border and single-line wins extends the story, while the Mexico connection positions CPKC to benefit as supply chains shift toward North America. The main external risks are a freight-cycle downturn and any change to North American trade or tariff policy that disrupts cross-border volumes.
Sources: CPKC Q1 2026 earnings (ad-hoc-news), CPKC investor summary (Quartr), CPKC price target raised (Investing.com)
Peer Cohorts (Per Segment, With Filing Citations)
Rail freight transportation (CPKC consolidated) (reported)
- CSX (CSX CORPORATION)
- FY2025 10-K: …to revenue for overcharge claims filed by customers, which are based on historical payments to customers for rate overcharges as a percentage of total billing; and • Incentive-based refunds to customers, which are primarily volume-related, are recorded as a reduction to revenue on the basis of the projected liability…
- FY2025 10-K: …producers, the automotive industry, construction companies, farmers and feed mills, wholesalers and retailers, and energy producers. The Company's intermodal business links customers to railroads via trucks and terminals. CSXT also serves thousands of production and distribution facilities through track connections…
- NSC (NORFOLK SOUTHERN CORP)
- FY2025 10-K: …upon request. 10 Material Contracts - (a) The Transaction Agreement, dated as of June 10, 1997, by and among CSX and CSX Transportation, Inc., Registrant, Norfolk Southern Railway Company, Conrail Inc., Consolidated Rail Corporation, and CRR Holdings LLC, with certain schedules thereto, previously filed, is…
- FY2025 10-K: …reference from Exhibit 10(dd) to Norfolk Southern Corporation's Form 10-Q filed on July 30, 2004. (SEC File No. 001-08339) (e) Amendment No. 5 to the Transaction Agreement, dated as of August 27, 2004, by and among CSX Corporation, CSX Transportation, Inc., Norfolk Southern Corporation, Norfolk Southern Railway…
- UNP (UNION PACIFIC CORP)
- FY2025 10-K: …for rail transportation; natural gas prices, weather conditions, and demand for other energy sources may impact the coal market; crude oil prices and spreads may drive demand for petroleum products and drilling materials; available truck capacity could impact our intermodal business; and international trade…
- FY2025 10-K: …and managerial control with respect to the combined entity; • the inherent risk and complexity of integrating railroad operations, including operating, information technology, safety, and managerial systems and processes, particularly on a large scale, in the context of ongoing business operations and customer…
- CNI (CANADIAN NATIONAL RAILWAY CO)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.