Valued at a market capitalization of $91 billion, Canadian Pacific Kansas City (TSX:CP) is one of the largest companies trading on the TSX. Despite the continued decline, TSX stock has returned nearly 180% to shareholders over the past decade.
Is this TSX stock a good buy right now?
Canadian Pacific Kansas City operates a transcontinental freight rail network spanning approximately 32,000 miles through Canada, the United States and Mexico.
The company transports bulk freight, freight freight and intermodal containers and provides comprehensive rail and intermodal transportation services to business centers throughout North America.
Canadian Pacific Kansas City continues to deliver impressive results two and a half years after completing its transformative merger with Kansas City Southern.
The combined entity has led the industry in volume growth, posting a 5% increase in revenue in ton-miles this year as competitors struggle with a prolonged freight recession. Management expects to end 2025 with double-digit earnings per share growth for the second consecutive year, demonstrating the ability to translate volume gains into operating results.
The merger thesis was focused on growth, and the company is executing on that vision across multiple channels. Revenue synergies should exceed $1.1 billion by 2025, ahead of initial projections. Furthermore, this number could be closer to $1.4 billion by 2026.
According to the rail giant, these synergies extend beyond traditional cost savings and focus on strategic real estate projects and innovative customer partnerships.
Recent examples include Americol’s cold storage facilities at intermodal terminals, which create a new service offering between Chicago, Mexico City and back to the United States.
Management believes that synergy opportunities will continue into 2027 and 2028 as trade agreements stabilize and deferred customer investment projects resume.
Capital allocation shows management’s confidence in the business model and current valuation. CP recently completed a share buyback program, buying back 4% of its outstanding shares and increasing its dividend by 20% earlier this year.
Management emphasized that it will continue to focus on buybacks rather than dividends in the near term, given the current share price relative to intrinsic value. The stock’s valuation metrics have compressed by double digits despite two years of growth, creating an attractive opportunity for shareholders.
What is the price target of the TSX stock?
CP expects to spend $2.8 billion on capital expenditures in 2026, up from $2.9 billion in 2025. The Canadian heavyweight is shifting spending from basic network infrastructure to rolling stock, including 100 new Tier 4 locomotives purchased in 2025 and another 70 planned for 2026, to improve fuel efficiency.
Analysts who follow the TSX stock predict that adjusted earnings will grow from $4.25 per share in 2024 to $7.40 per share in 2029. During this period, free cash flow (FCF) is expected to grow from $2.4 billion in 2024 to $5.3 billion.
If the TSX stock is priced at 25 times forward FCF, which is lower than the 10-year average, it could rise 46% over the next three years.
Management maintains a cautious macroeconomic outlook for 2026 and expects modest conditions. Self-help initiatives, including increasing market share; intermodal truck conversion; continued synergies; and the strength of bulk commodities such as potash, metallurgical coal and grain provide confidence in continued volume growth and margin expansion regardless of broader economic trends.
#Top #TSX #Stock #Buy #Hold