Canadian Pacific Railway shares climb on high hopes for efficiency plan

Wed Dec 5, 2012 3:56pm EST
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By Susan Taylor

TORONTO (Reuters) - Shares of Canadian Pacific Railway (CP.TO: Quote) touched an all-time high on Wednesday as the railroad detailed a turnaround plan that includes sweeping job cuts which could save about C$500 million ($503 million) over the next four years.

The stock's rally extends a gain of nearly 30 percent since hard-driving railway veteran Hunter Harrison was appointed chief executive in June after CP's largest shareholder, Pershing Square Capital Management Ltd, won a bruising proxy battle with former management.

Harrison, who on Tuesday outlined key points in a plan that will eliminate about 23 percent of CP's jobs in four years, said his turnaround plan would allow Canada's second-largest railway to thin out its assets and use them more efficiently.

"We're going to reduce the number of assets required; we're going to do more with less. We're going to make those assets really sweat," Harrison on Wednesday told analysts at a New York event to outline the company's turnaround plan.

Analysts said the overhaul appears a credible strategy to revive the fortunes of CP, whose operating efficiency is currently the North American industry's worst.

"CP's targets are largely as expected and we believe that management and Hunter Harrison specifically have laid out a very credible plan," said National Bank Financial analyst Cameron Doerksen. "We also believe that CP's new management team fully backs Hunter Harrison's plan. Our issue with the stock continues to be valuation."

CP stock peaked at C$98.04 on the Toronto Stock Exchange, a new high point since the company's 2001 listing, before edging back to C$97.23. That was a gain of C$4.23 or 4.5 percent.

A turnaround has largely been priced into CP stock, said Doerksen, who has an "underperform" rating and a C$84 target on the shares.   Continued...

A Canadian Pacific Railway locomotive sits at the Obico Intermodal Terminal in Toronto, May 23, 2012. REUTERS/Mike Cassese