Deutsche Bank analyst Amit Mehrotra upgraded Canadian Pacific Railway (CP) to Buy from Hold with a price target of $98, up from $80. The analyst believes “very little” of the $1B in synergies from the Kansas City Southern (KSU) deal is reflected in CP’s share price today, which he says should begin to take hold starting in Q1 of next year after final approval from the Surface Transportation Board. Canadian Pacific is the “highest quality railroad from an operational perspective with the biggest volume growth opportunity,” Mehrotra tells investors in a research note. The analyst adds that “we’re now very close to the start of integration.” He is positive on the outlook for transportation equities in 2023. Mehrotra estimates the trough in earnings growth will likely be in Q2, followed by a “prolonged period of improving year-on-year growth.” This is an important consideration in cyclical investing, as negative revisions closer to the bottom typically translate to higher multiples and higher equity values, Mehrotra writes.
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