Industrials

Report by Insight Investment Research

Robert Crimes initiates coverage with a Buy rating and TP of $384 (100% upside) - this follows Insight’s recent work on CN Rail (TP C$341, +120%) and CPKC (TP C$218, +108%). Railroads is now their preferred Infrastructure sub-sector, which is set to benefit from the “New Golden Age of Rail” driven by favourable environmental credentials and increasing cost advantage vs. road. While UNP has underperformed its peers regarding network fluidity, volumes, EBITDA growth and safety, Robert expects its new CEO to improve performance.

As infrastructure specialists, Insight focuses on lifetime free cash flows with detailed DCFs / DDMs and IRR-Ke valuations. Their CN Rail initiation report from earlier this year provides a useful example of a 'typical' Insight report and can be accessed by clicking here.

Industrials

Report by Insight Investment Research

The STB approved CP’s acquisition of Kansas City Southern which will lead to the creation of Canadian Pacific Kansas City (CPKC) on 14th April. Robert Crimes expects extensive revenue synergies from the only single-line railroad to link Canada, US and Mexico. He considers CPKC best positioned to benefit from cross continental American trade that has grown notably strongly since the USMCA in mid-2020. Robert estimates total revenues +4.6% CAGR (volumes +1.6%, prices +3.0%) and EBITDA +5.7% CAGR in 2024-50E. His DDM based TP is C$218 (+110% upside) which implies an EV/EBITDA of 25.9x in 2024E, reducing to 16.1x in 2030E given high EBITDA growth.