Intrinsic value of Canadian Pacific Railway - CP

Previous Close

$168.46

  Intrinsic Value

$65.16

stock screener

  Rating & Target

str. sell

-61%

  Value-price divergence*

-55%

Previous close

$168.46

 
Intrinsic value

$65.16

 
Up/down potential

-61%

 
Rating

str. sell

 
Value-price divergence*

-55%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 24.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -7.15
  13.30
  12.47
  11.72
  11.05
  10.45
  9.90
  9.41
  8.97
  8.57
  8.22
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
Revenue, $m
  4,613
  5,227
  5,878
  6,567
  7,293
  8,055
  8,852
  9,686
  10,554
  11,459
  12,401
  13,380
  14,397
  15,454
  16,553
  17,695
  18,882
  20,117
  21,401
  22,738
  24,129
  25,579
  27,091
  28,667
  30,311
  32,027
  33,819
  35,692
  37,648
  39,694
  41,834
Variable operating expenses, $m
 
  3,129
  3,517
  3,928
  4,360
  4,814
  5,290
  5,786
  6,304
  6,843
  7,404
  7,973
  8,580
  9,210
  9,865
  10,545
  11,253
  11,988
  12,754
  13,550
  14,380
  15,244
  16,145
  17,084
  18,064
  19,086
  20,154
  21,270
  22,436
  23,656
  24,931
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  2,723
  3,129
  3,517
  3,928
  4,360
  4,814
  5,290
  5,786
  6,304
  6,843
  7,404
  7,973
  8,580
  9,210
  9,865
  10,545
  11,253
  11,988
  12,754
  13,550
  14,380
  15,244
  16,145
  17,084
  18,064
  19,086
  20,154
  21,270
  22,436
  23,656
  24,931
Operating income, $m
  1,890
  2,098
  2,361
  2,639
  2,933
  3,241
  3,563
  3,899
  4,250
  4,616
  4,996
  5,406
  5,817
  6,244
  6,688
  7,150
  7,629
  8,128
  8,647
  9,187
  9,750
  10,336
  10,946
  11,583
  12,247
  12,941
  13,665
  14,421
  15,212
  16,039
  16,903
EBITDA, $m
  2,364
  2,642
  2,971
  3,319
  3,686
  4,071
  4,474
  4,895
  5,335
  5,792
  6,268
  6,762
  7,277
  7,811
  8,367
  8,944
  9,544
  10,168
  10,817
  11,492
  12,196
  12,929
  13,693
  14,489
  15,320
  16,188
  17,093
  18,040
  19,029
  20,063
  21,145
Interest expense (income), $m
  361
  352
  431
  515
  603
  697
  794
  897
  1,004
  1,116
  1,232
  1,353
  1,479
  1,609
  1,745
  1,886
  2,033
  2,186
  2,344
  2,509
  2,681
  2,860
  3,046
  3,241
  3,443
  3,654
  3,875
  4,105
  4,346
  4,597
  4,860
Earnings before tax, $m
  1,593
  1,745
  1,930
  2,125
  2,329
  2,544
  2,768
  3,002
  3,246
  3,500
  3,765
  4,053
  4,339
  4,635
  4,943
  5,263
  5,596
  5,943
  6,303
  6,678
  7,068
  7,475
  7,900
  8,342
  8,804
  9,286
  9,790
  10,316
  10,866
  11,442
  12,043
Tax expense, $m
  410
  471
  521
  574
  629
  687
  747
  811
  877
  945
  1,016
  1,094
  1,171
  1,251
  1,335
  1,421
  1,511
  1,604
  1,702
  1,803
  1,908
  2,018
  2,133
  2,252
  2,377
  2,507
  2,643
  2,785
  2,934
  3,089
  3,252
Net income, $m
  1,183
  1,274
  1,409
  1,551
  1,700
  1,857
  2,021
  2,192
  2,370
  2,555
  2,748
  2,959
  3,167
  3,384
  3,608
  3,842
  4,085
  4,338
  4,601
  4,875
  5,160
  5,457
  5,767
  6,090
  6,427
  6,779
  7,147
  7,531
  7,932
  8,352
  8,792

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  121
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  14,226
  15,983
  17,976
  20,084
  22,303
  24,633
  27,072
  29,619
  32,276
  35,043
  37,922
  40,916
  44,027
  47,261
  50,621
  54,113
  57,744
  61,519
  65,446
  69,534
  73,790
  78,225
  82,846
  87,666
  92,694
  97,942
  103,423
  109,149
  115,133
  121,390
  127,934
Adjusted assets (=assets-cash), $m
  14,105
  15,983
  17,976
  20,084
  22,303
  24,633
  27,072
  29,619
  32,276
  35,043
  37,922
  40,916
  44,027
  47,261
  50,621
  54,113
  57,744
  61,519
  65,446
  69,534
  73,790
  78,225
  82,846
  87,666
  92,694
  97,942
  103,423
  109,149
  115,133
  121,390
  127,934
Revenue / Adjusted assets
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
Average production assets, $m
  12,207
  13,829
  15,554
  17,377
  19,298
  21,313
  23,424
  25,628
  27,927
  30,321
  32,812
  35,402
  38,094
  40,892
  43,799
  46,821
  49,962
  53,229
  56,627
  60,164
  63,847
  67,683
  71,682
  75,852
  80,203
  84,744
  89,486
  94,440
  99,618
  105,031
  110,694
Working capital, $m
  -250
  -397
  -447
  -499
  -554
  -612
  -673
  -736
  -802
  -871
  -942
  -1,017
  -1,094
  -1,175
  -1,258
  -1,345
  -1,435
  -1,529
  -1,626
  -1,728
  -1,834
  -1,944
  -2,059
  -2,179
  -2,304
  -2,434
  -2,570
  -2,713
  -2,861
  -3,017
  -3,179
Total debt, $m
  6,427
  7,836
  9,359
  10,969
  12,665
  14,445
  16,308
  18,254
  20,284
  22,398
  24,598
  26,885
  29,262
  31,732
  34,299
  36,968
  39,741
  42,625
  45,626
  48,749
  52,001
  55,389
  58,919
  62,602
  66,443
  70,453
  74,640
  79,015
  83,587
  88,367
  93,366
Total liabilities, $m
  10,802
  12,211
  13,734
  15,344
  17,040
  18,820
  20,683
  22,629
  24,659
  26,773
  28,973
  31,260
  33,637
  36,107
  38,674
  41,343
  44,116
  47,000
  50,001
  53,124
  56,376
  59,764
  63,294
  66,977
  70,818
  74,828
  79,015
  83,390
  87,962
  92,742
  97,741
Total equity, $m
  3,424
  3,772
  4,242
  4,740
  5,264
  5,813
  6,389
  6,990
  7,617
  8,270
  8,950
  9,656
  10,390
  11,154
  11,947
  12,771
  13,628
  14,518
  15,445
  16,410
  17,415
  18,461
  19,552
  20,689
  21,876
  23,114
  24,408
  25,759
  27,171
  28,648
  30,192
Total liabilities and equity, $m
  14,226
  15,983
  17,976
  20,084
  22,304
  24,633
  27,072
  29,619
  32,276
  35,043
  37,923
  40,916
  44,027
  47,261
  50,621
  54,114
  57,744
  61,518
  65,446
  69,534
  73,791
  78,225
  82,846
  87,666
  92,694
  97,942
  103,423
  109,149
  115,133
  121,390
  127,933
Debt-to-equity ratio
  1.877
  2.080
  2.210
  2.310
  2.410
  2.480
  2.550
  2.610
  2.660
  2.710
  2.750
  2.780
  2.820
  2.850
  2.870
  2.890
  2.920
  2.940
  2.950
  2.970
  2.990
  3.000
  3.010
  3.030
  3.040
  3.050
  3.060
  3.070
  3.080
  3.080
  3.090
Adjusted equity ratio
  0.234
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236
  0.236

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,183
  1,274
  1,409
  1,551
  1,700
  1,857
  2,021
  2,192
  2,370
  2,555
  2,748
  2,959
  3,167
  3,384
  3,608
  3,842
  4,085
  4,338
  4,601
  4,875
  5,160
  5,457
  5,767
  6,090
  6,427
  6,779
  7,147
  7,531
  7,932
  8,352
  8,792
Depreciation, amort., depletion, $m
  474
  544
  610
  680
  753
  831
  912
  996
  1,084
  1,176
  1,271
  1,356
  1,460
  1,567
  1,678
  1,794
  1,914
  2,039
  2,170
  2,305
  2,446
  2,593
  2,746
  2,906
  3,073
  3,247
  3,429
  3,618
  3,817
  4,024
  4,241
Funds from operations, $m
  1,505
  1,818
  2,019
  2,231
  2,454
  2,688
  2,932
  3,188
  3,454
  3,731
  4,019
  4,315
  4,627
  4,950
  5,287
  5,636
  6,000
  6,377
  6,771
  7,180
  7,606
  8,050
  8,513
  8,996
  9,500
  10,026
  10,575
  11,149
  11,749
  12,377
  13,033
Change in working capital, $m
  -41
  -47
  -50
  -52
  -55
  -58
  -61
  -63
  -66
  -69
  -72
  -74
  -77
  -80
  -84
  -87
  -90
  -94
  -98
  -102
  -106
  -110
  -115
  -120
  -125
  -130
  -136
  -142
  -149
  -155
  -163
Cash from operations, $m
  1,546
  1,865
  2,069
  2,283
  2,509
  2,746
  2,993
  3,251
  3,520
  3,800
  4,091
  4,390
  4,704
  5,031
  5,370
  5,723
  6,090
  6,471
  6,868
  7,282
  7,712
  8,161
  8,628
  9,116
  9,625
  10,156
  10,711
  11,292
  11,898
  12,532
  13,195
Maintenance CAPEX, $m
  0
  -468
  -530
  -596
  -666
  -739
  -817
  -897
  -982
  -1,070
  -1,162
  -1,257
  -1,356
  -1,460
  -1,567
  -1,678
  -1,794
  -1,914
  -2,039
  -2,170
  -2,305
  -2,446
  -2,593
  -2,746
  -2,906
  -3,073
  -3,247
  -3,429
  -3,618
  -3,817
  -4,024
New CAPEX, $m
  -875
  -1,622
  -1,725
  -1,823
  -1,920
  -2,016
  -2,110
  -2,204
  -2,299
  -2,394
  -2,491
  -2,590
  -2,692
  -2,798
  -2,907
  -3,022
  -3,141
  -3,267
  -3,398
  -3,537
  -3,683
  -3,837
  -3,999
  -4,170
  -4,351
  -4,541
  -4,742
  -4,954
  -5,178
  -5,414
  -5,662
Cash from investing activities, $m
  -791
  -2,090
  -2,255
  -2,419
  -2,586
  -2,755
  -2,927
  -3,101
  -3,281
  -3,464
  -3,653
  -3,847
  -4,048
  -4,258
  -4,474
  -4,700
  -4,935
  -5,181
  -5,437
  -5,707
  -5,988
  -6,283
  -6,592
  -6,916
  -7,257
  -7,614
  -7,989
  -8,383
  -8,796
  -9,231
  -9,686
Free cash flow, $m
  755
  -225
  -186
  -136
  -77
  -9
  66
  149
  239
  336
  438
  542
  655
  773
  896
  1,023
  1,155
  1,290
  1,431
  1,575
  1,724
  1,878
  2,036
  2,199
  2,368
  2,542
  2,722
  2,909
  3,102
  3,302
  3,509
Issuance/(repayment) of debt, $m
  -34
  1,428
  1,523
  1,610
  1,696
  1,780
  1,863
  1,946
  2,030
  2,114
  2,200
  2,287
  2,377
  2,470
  2,567
  2,668
  2,774
  2,884
  3,001
  3,123
  3,252
  3,388
  3,531
  3,682
  3,842
  4,010
  4,187
  4,374
  4,572
  4,780
  5,000
Issuance/(repurchase) of shares, $m
  -880
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -916
  1,428
  1,523
  1,610
  1,696
  1,780
  1,863
  1,946
  2,030
  2,114
  2,200
  2,287
  2,377
  2,470
  2,567
  2,668
  2,774
  2,884
  3,001
  3,123
  3,252
  3,388
  3,531
  3,682
  3,842
  4,010
  4,187
  4,374
  4,572
  4,780
  5,000
Total cash flow (excl. dividends), $m
  -171
  1,203
  1,337
  1,474
  1,619
  1,770
  1,930
  2,096
  2,269
  2,450
  2,638
  2,829
  3,033
  3,244
  3,463
  3,691
  3,928
  4,175
  4,431
  4,698
  4,976
  5,265
  5,567
  5,882
  6,210
  6,552
  6,910
  7,283
  7,674
  8,082
  8,509
Retained Cash Flow (-), $m
  126
  -450
  -470
  -497
  -524
  -550
  -576
  -601
  -627
  -653
  -679
  -706
  -734
  -763
  -793
  -824
  -857
  -891
  -927
  -965
  -1,004
  -1,046
  -1,091
  -1,137
  -1,187
  -1,239
  -1,293
  -1,351
  -1,412
  -1,477
  -1,544
Prev. year cash balance distribution, $m
 
  102
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  855
  866
  977
  1,095
  1,221
  1,354
  1,494
  1,642
  1,797
  1,958
  2,123
  2,298
  2,481
  2,670
  2,867
  3,072
  3,284
  3,504
  3,733
  3,971
  4,219
  4,476
  4,744
  5,023
  5,314
  5,616
  5,932
  6,261
  6,605
  6,964
Discount rate, %
 
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.18
  22.24
  23.35
  24.52
  25.74
  27.03
  28.38
  29.80
  31.29
  32.85
  34.50
  36.22
PV of cash for distribution, $m
 
  786
  726
  740
  743
  734
  715
  685
  645
  598
  545
  486
  427
  368
  311
  258
  209
  166
  128
  97
  72
  51
  36
  24
  16
  10
  6
  4
  2
  1
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Canadian Pacific Railway Limited, together with its subsidiaries, owns and operates a transcontinental freight railway in Canada and the United States. The Company operates through rail transportation segment. The Company's transports bulk commodities, merchandise freight, and intermodal traffic over a network of approximately 12,400 miles. Its railway feeds directly into the United States heartland from the east and west coasts. Its Bulk commodities include grain, coal, potash, fertilizers and sulfur. Its Merchandise freight consists of finished vehicles and machinery, as well as forest and industrial and consumer products. Its Intermodal traffic consists of retail goods in overseas containers that can be transported by train, ship and truck and in domestic containers and trailers that can be moved by train and truck. Its subsidiaries include Canadian Pacific Railway Company, Soo Line Railroad Company, Delaware and Hudson Railway Company, Inc. and Mount Stephen Properties Inc.

FINANCIAL RATIOS  of  Canadian Pacific Railway (CP)

Valuation Ratios
P/E Ratio 20.8
Price to Sales 5.3
Price to Book 7.2
Price to Tangible Book
Price to Cash Flow 15.9
Price to Free Cash Flow 36.7
Growth Rates
Sales Growth Rate -7.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -22.4%
Cap. Spend. - 3 Yr. Gr. Rate -0.9%
Financial Strength
Quick Ratio 6
Current Ratio 0.1
LT Debt to Equity 187.1%
Total Debt to Equity 187.7%
Interest Coverage 5
Management Effectiveness
Return On Assets 10.1%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital 11.8%
Ret/ On T. Cap. - 3 Yr. Avg. 11.7%
Return On Equity 33.9%
Return On Equity - 3 Yr. Avg. 27.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 88%
Gross Margin - 3 Yr. Avg. 85.3%
EBITDA Margin 52.6%
EBITDA Margin - 3 Yr. Avg. 46.5%
Operating Margin 41%
Oper. Margin - 3 Yr. Avg. 38.8%
Pre-Tax Margin 34.5%
Pre-Tax Margin - 3 Yr. Avg. 31.5%
Net Profit Margin 25.6%
Net Profit Margin - 3 Yr. Avg. 22.7%
Effective Tax Rate 25.7%
Eff/ Tax Rate - 3 Yr. Avg. 28.1%
Payout Ratio 16%

CP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CP stock intrinsic value calculation we used $4613 million for the last fiscal year's total revenue generated by Canadian Pacific Railway. The default revenue input number comes from 2016 income statement of Canadian Pacific Railway. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CP stock valuation model: a) initial revenue growth rate of 13.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.8%, whose default value for CP is calculated based on our internal credit rating of Canadian Pacific Railway, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Canadian Pacific Railway.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CP stock the variable cost ratio is equal to 59.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.5% for Canadian Pacific Railway.

Corporate tax rate of 27% is the nominal tax rate for Canadian Pacific Railway. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CP stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CP are equal to 264.6%.

Life of production assets of 26.1 years is the average useful life of capital assets used in Canadian Pacific Railway operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CP is equal to -7.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3424 million for Canadian Pacific Railway - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 147.197 million for Canadian Pacific Railway is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Canadian Pacific Railway at the current share price and the inputted number of shares is $24.8 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ CSX Nears Buy Point But Autos Weigh On Q3 Volume   [Oct-17-17 05:04PM  Investor's Business Daily]
▶ Canadian Pacific meets 3Q profit forecasts   [04:17PM  Associated Press]
▶ Reading US Class I Railroads Recent Stock Buybacks   [Sep-29-17 07:42AM  Market Realist]
▶ [$$] We Fix a Railroad Dividend Ranking   [Sep-25-17 12:01AM  Barrons.com]
▶ What Analysts Recommend for US Railroads   [10:37AM  Market Realist]
▶ Canadian Pacific Railway: Railcars Surged, Intermodal Lagged   [Sep-08-17 02:06PM  Market Realist]
▶ How Canadian Pacific Railways Volumes Compared to Peers   [Sep-01-17 04:36PM  Market Realist]
▶ CP donates $50,000 to Hurricane Harvey relief efforts   [Aug-31-17 06:38PM  CNW Group]
▶ Growth for Burlington Northern Santa Fes Consumer Products   [Aug-11-17 12:35PM  Market Realist]
▶ Coal Revival: A Blessing for Railroads   [Aug-10-17 05:57PM  Zacks]
▶ Inside Genesee & Wyomings 2Q17 Operating Margins   [Aug-08-17 09:07AM  Market Realist]
▶ Genesee & Wyomings European Revenues in 2Q17   [08:08AM  Market Realist]
▶ Media invited to CP Canada 150 Train event in Calgary   [Jul-30-17 12:45PM  CNW Group]
▶ TCRC-MWED ratify five-year agreement with CP   [Jul-20-17 05:38PM  PR Newswire]
Financial statements of CP
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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