Pershing Square Holdings: “Canadian Pacific Railway (CP) is a High-Quality Business”

Pershing Square Holdings, an investment holding company, released its second quarter 2022 investor letter. A copy of the same can be downloaded here. The fund generated NAV performance of -26% at the end of the first half, which was slightly higher than the total shareholder returns of -27.3%. Through August 16, 2022, the fund returned -10.8% compared to a -8.8% return for the S&P 500 index. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.

Pershing Square Holdings discussed stocks like Canadian Pacific Railway Limited (NYSE:CP) in the second quarter investor letter. Headquartered in Calgary, Canada, Canadian Pacific Railway Limited (NYSE:CP) is a transcontinental freight railway company. On September 15, 2022, Canadian Pacific Railway Limited (NYSE:CP) stock closed at $75.77 per share. One-month return of Canadian Pacific Railway Limited (NYSE:CP) was -7.62% and its shares gained 11.12% of their value over the last 52 weeks. Canadian Pacific Railway Limited (NYSE:CP) has a market capitalization of $70.844 billion.

Here is what Pershing Square Holdings specifically said about Canadian Pacific Railway Limited (NYSE:CP)  in its Q2 2022 investor letter:

“Canadian Pacific Railway Limited (NYSE: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 volume and pricing outlook combined with the upcoming transformational acquisition of Kansas City Southern (“KCS”), we believe that CP’s prospects are bright.

CP reported revenue growth of 7% in the second quarter as pricing and mix, fuel surcharge pass-throughs and foreign exchange more than offset a small decline in volumes. CP is leveraging the strong pricing environment to renew contracts at an average price increase of over 6%. Pricing directly benefits earnings as rails pass on increases in fuel and other expenses to customers through contractual fuel surcharges and CPI escalators. In addition to earnings growth, high inflation should help rail transportation take share from trucking and lead to incremental volume growth over time. Customers are choosing cheaper transportation solutions as prices rise, and CP’s mission-critical rail service is often the cheapest or only viable method for transporting heavy freight over long distances. High fuel prices and wage gains also disproportionally increase the cost of trucking, which is up to three times less fuel efficient and much more labor intensive than rail transportation.

The demand outlook for CP continues to improve, especially given the current geopolitical environment. Russia’s invasion of Ukraine and the resulting supply disruptions have boosted demand for Canadian exports such as grain and potash. Deglobalization has also increased the likelihood of major North American onshoring and energy production, which will accelerate CP’s volume growth in the future. Total volumes declined by 2% in the second quarter due to the smaller than average Canadian grain harvest, while volumes excluding grain increased by 5%. The grain headwind will flip to a tailwind in the fall as CP anticipates a normal grain crop, which supports management’s double-digit volume and revenue growth outlook for the second half of 2022. …” (Click here to read the full text)

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Canadian Pacific Railway Limited (NYSE:CP) is not on the list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 42 hedge fund portfolios were held by Canadian Pacific Railway Limited (NYSE:CP) at the end of the second quarter which was 41 in the previous quarter.

We discussed Canadian Pacific Railway Limited (NYSE:CP) in another article and shared the list of stocks to buy according to Mark McMeans’ Brasada Capital Management. In addition, please check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other leading investors.

Disclosure: None. This article is originally published at Insider Monkey.