Investing№ 102NYSE · CP
CPKC
CPKC runs the only railway across Canada, the United States and Mexico and earned C$5.8B of operating income on C$16.0B of revenue, but owners kept C$2.9B after capital against C$4.6B paid out, and the price is above my bull case.
Updated Fiscal year ends 31 December47 min readPedrum Shokouhi
Strong moat
Research, not investment advice. Figures as of .
Key numbers
- Market valueUS$80B (calculated)US$91.49 times 869.55M shares; C$111.2B [1][3]
- RevenueC$16.0B (calculated)TTM to September 2026; C$15.1B in 2025 [4][3]
- Core operating ratio60.6% (calculated)TTM; 62.1% for nine months of 2026, 59.9% in 2025; lower is better [3][5][6]
- Core adjusted EPSC$4.90 (calculated)TTM, US$3.51; 2026 guide is low double-digit growth from C$4.61 [3][6]
- Cash after capitalC$2.93B (calculated)TTM, against C$4.63B paid in dividends and buybacks [4][3]
- Net debtC$25.4B (calculated)30 September 2026; 3.2x EBITDA by my count and the company’s [3][5]
(reported)Reported in a filing (calculated)Calculated from reported figures (estimate)My estimate
The answer
- CPKC owns the only railway that runs through Canada, the United States and Mexico on one line, and it earned C$5.8B of operating income on C$16.0B of revenue in the twelve months to September; but after C$2.85B of capital spending, the cash left for owners was C$2.9B, against C$4.6B paid out in dividends and buybacks, and the gap was borrowed (calculated).34
- I value a share at US$66 (C$92), in a range of US$38 to US$89, and the number turns on two things I can’t judge closely: how low the operating ratio can stay when shippers, tariffs and a larger Union Pacific push back, and what the Mexican part of the network earns once its exclusive rights end in 2037 and its concession ends in 2047 (estimate).7
- At US$91.49 the price is 39% above my base value and above my bull case, and it returns 4.6% a year on my base cash flows against the 9.0% I require; the market is accepting about 7.1% on my cash flows, so this is a debate about whether a unique network deserves a premium, and my margin-of-safety price is US$50 (estimate).18
Six questions, one line each
- Why
- It hauls grain, potash, fuel, cars and containers over about 20,000 miles of track from Vancouver to Montréal to Kansas City, the Gulf Coast and Mexico City, and nobody else can offer one railroad for the whole trip.7 →
- The moat
- A railroad can’t be copied, and it earned C$2.7B in Mexico in 2025; but the same line is regulated in three countries, and ex-fuel revenue per ton-mile rose only 0.5% in the first nine months of 2026 (calculated).73 →
- The advantage
- Running fewer, longer, heavier trains on a schedule gave a record 59.9% core operating ratio in 2025 and the lowest accident frequency among the large railroads for three years running; the price of it is C$2.8B a year of capital.673 →
- Management
- Keith Creel was paid C$25.7M for 2025 on a plan built around operating ratio and operating income; the share count is down 6.7% since the start of 2025, bought back this year at C$122 a share against my C$92 base value (calculated).93 →
The business
CPKC moves freight on rails. It is a Calgary company with one segment, and it describes itself as the only freight railway spanning Canada, the United States and Mexico.7 It took its present form on 14 April 2023, when Canadian Pacific took control of Kansas City Southern, which it had bought in December 2021 and held in a trust while US regulators reviewed the deal.7 The trains run over about 20,000 miles of route: roughly 8,400 in Canada, 8,800 in the United States and 3,100 in Mexico, from the Port of Vancouver and the Port of Montréal through Chicago, Minneapolis and Kansas City to Port Arthur, New Orleans, Laredo, Mexico City and the Pacific port of Lázaro Cárdenas.7
All company figures are in Canadian dollars, marked C$, because that is how CPKC reports, under US accounting rules. It files 10-Ks and 10-Qs with the SEC and lists in New York and Toronto. The page price is the New York close of US$91.49; the Toronto close was C$127.90, and at the Bank of Canada’s 1.3978 the New York price equals C$127.88, within 0.02% of Toronto. Nasdaq.com’s quote page shows the same New York last sale.12810 Per-share values on this page are in US dollars. TTM means the twelve months to 30 September 2026. The third-quarter report came out on 28 October.35
Over those twelve months revenue was C$16.0B, operating income C$5.83B, earnings to common holders C$3.86B and operating cash flow C$5.78B (calculated).43 The company’s own core adjusted earnings per share were C$4.90, against C$4.33 under US accounting (calculated).37 The gap is the extra depreciation from the Kansas City Southern purchase price, plus integration and advisory costs and a one-time tax charge, which I come back to.
Revenue and operating income
C$, calendar years; TTM is the twelve months to 30 September 2026
- Revenue C$16.0B, TTM
- Operating income C$5.8B, TTM
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | TTM | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue (reported) | C$6,232M | C$6,554M | C$7,316M | C$7,792M | C$7,710M | C$7,995M | C$8,814M | C$12,555M | C$14,546M | C$15,078M | C$16,007M |
| Operating income (reported) | C$2,411M | C$2,519M | C$2,831M | C$3,124M | C$3,311M | C$3,206M | C$3,329M | C$4,388M | C$5,179M | C$5,609M | C$5,830M |
What it carries
Freight revenue was C$14.8B in 2025. Bulk commodities were 36% of it (grain 22%, coal 7%, potash 4%, fertilizers and sulphur 3%), merchandise 46% (energy, chemicals and plastics 20%, metals and minerals 12%, automotive 9%, forest products 5%) and intermodal 18%.7 Grain matters more than the percentages say. The network runs through the grain-growing prairies of western Canada and the northern US plains, and the company uses 8,500-foot trains that move about 40% more grain than the older ones.7 Grain freight revenue rose 21% in the first nine months of 2026, with more of it moving to Mexico, a long haul that adds ton-miles faster than carloads.3
What it carried in 2026
Freight revenue by line of business, first nine months, with year-on-year change.
| Line of business | 2026, C$M | 2025, C$M | Change | What moves |
|---|---|---|---|---|
| Grain (reported) | 2,700 | 2,233 | +21% | Canadian and US grain to ports and to Mexico |
| Intermodal (reported) | 2,228 | 2,026 | +10% | Containers and trailers; Vancouver, Montréal, Lázaro Cárdenas |
| Energy, chemicals and plastics (reported) | 2,240 | 2,171 | +3% | Refined fuels into Mexico, LPG, crude, plastics |
| Metals, minerals and consumer products (reported) | 1,494 | 1,350 | +11% | Steel, aggregates, frac sand, food |
| Automotive (reported) | 1,072 | 988 | +9% | Finished vehicles from Mexican, Canadian and US plants |
| Coal (reported) | 689 | 768 | −10% | Mostly Canadian metallurgical coal for export |
| Forest products (reported) | 590 | 605 | −2% | Pulp, paper, lumber |
| Potash (reported) | 515 | 490 | +5% | Saskatchewan to Vancouver, Portland and the US Midwest |
| Fertilizers and sulphur (reported) | 327 | 314 | +4% | Alberta dry and wet fertilizers, sulphur |
| Total freight (reported) | 11,855 | 10,945 | +8% | Fuel surcharge was C$1,589M of it, against C$1,110M |
Where it earns
By country, 2025 revenue was C$7.2B in Canada (48%), C$5.1B in the United States (34%) and C$2.7B in Mexico (18%).7 Mexico is the part nobody else has. The Mexican company, which the filings call CPKCM, holds a concession from the Mexican government until June 2047 and has the exclusive right to provide freight service on its lines through 2037, subject to some trackage and haulage rights for others; it pays the government 1.25% of its gross revenue each year.73 The concession can be renewed for up to 50 years more, under conditions, and the 10-K says that if it is ended the track and improvements go back to the government with no compensation.7 I treat that as a separate risk in Valuation, because it is the one place the franchise has an end date.
Revenue by country
C$, by where the revenue is earned
- Canada 48% in 2025
- United States 34%
- Mexico 18%
Show the numbers
| 2023 | 2024 | 2025 | |
|---|---|---|---|
| Canada (reported) | C$6,651M | C$6,936M | C$7,243M |
| United States (reported) | C$4,257M | C$4,988M | C$5,124M |
| Mexico (reported) | C$1,647M | C$2,622M | C$2,711M |
How it makes money
A railroad rents out room on a track it owns, and it earns more when the track is used more, for the same fixed cost. Compensation was C$2.6B in 2025, depreciation C$2.0B and fuel C$1.7B, on 20,000 or so employees, nearly three quarters of them union.7 The costs that vary with volume are fuel, crew pay, car hire and some materials; the rest, track, signals, yards and the people to run them, barely moves when volume does. That is the engine, and it works in both directions.
The standard score is the operating ratio: operating costs divided by revenue. CPKC’s was 62.8% in 2025 as reported, and 59.9% on the company’s core adjusted measure, which removes the extra depreciation from Kansas City Southern purchase accounting (2.2 points in 2026) and integration costs.763 It was 61.9% in the third quarter, and fuel prices cost 190 points of that, because a fuel surcharge adds revenue with no margin on it.5 Fuel surcharge revenue was 13% of freight revenue in the nine months, up from 10% in 2025, which is why 2026 revenue growth of 8% outruns volume growth of 4% (calculated).37
What management says it will do
The 2026 guide, set in January, was low double-digit growth in core adjusted earnings per share from C$4.61, mid-single-digit growth in revenue ton-miles and capital spending of C$2.65B, about 15% less than in 2025.6 After nine months core EPS was C$3.57 against C$3.28, up 9%, volume was up 4%, and on 28 October the company said it was on track to meet its commitments for the year.35 A year that ends at C$5.07, which is 10% growth, needs a fourth quarter of C$1.50 against C$1.33 last year (calculated). Revenue ton-miles grew 2% in the first quarter and 6% in the third, so the second half is where the guide gets made.135
The moat
A durable business keeps others from taking its profit. For a railroad the first protection is physical: nobody is going to lay a second line to Laredo, and the right to run trains between the three countries cost CPKC C$35.8B to assemble.12 The second protection is legal: the lines are common carriers under regulators in each country. The record of the last ten years shows what that bought for owners, and it is more modest than the network suggests.
Price over earnings at each year-end
Year-end close over that year’s diluted EPS; the last point uses today’s close and the twelve months to September 2026
- Price / earnings 29.5x now
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | Now | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Price / earnings (calculated) | 18.0x | 14.0x | 17.8x | 18.9x | 24.6x | 21.8x | 26.8x | 24.9x | 26.2x | 22.4x | 29.5x |
Earnings per share, adjusted for the 2021 five-for-one split, went from C$2.13 in 2016 to C$4.51 in 2025, which is 8.7% a year (calculated).4 Over those years the weighted diluted share count went from 753M to 917M, because the Kansas City Southern purchase issued 262.6M new shares, and it was back to 870.8M outstanding at 30 September 2026 as buybacks restarted.4123 Operating income per share, on the same counts, went from C$3.20 to C$6.12 (calculated). The share price in Toronto went from C$38.31 at the end of 2016 to C$127.90 now, which is 3.3 times, and the price over earnings from 18.0 to 29.5 on twelve-month earnings.24 Most of the gain after 2019 came from the multiple, not from earnings: earnings per share were 29% higher in 2025 than in 2019, and the year-end price was 53% higher (calculated). That is what a market does when it believes in a franchise. It is not a record of pricing power by itself.
The share price over ten years
Last close of each calendar quarter, NYSE, US$, log scale, not adjusted for dividends
- Close, Q4 2026 US$91.49
What does protect it
- The only single line. A shipper in Alberta or Saskatchewan can send a car to Mexico City without a hand-off, and a Mexican auto plant can reach Canada the same way. Since the merger the company has sold new through services: a Mexico Midwest Express between the US Midwest and Mexico, and with CSX a Southeast Mexico Express that opened a new east-west route in 2024.7 I can see the products in the filings. I cannot see their revenue, because the company does not report it.
- Gateways with few substitutes. Laredo, the port of Lázaro Cárdenas, the Port of Vancouver, Thunder Bay for grain, and the Gulf coast plants for plastics and fuels. The 10-K says the company provides freight service to the majority of automotive plants in Mexico and is a main carrier of refined fuels from the US Gulf Coast into Mexico.7
- Freight that does not choose. About 18% of revenue is intermodal, which competes with trucks. The other 82% is bulk and merchandise, where the customer is tied to a plant or a mine on the track and the haul is long.7
- Limits on competitors, written down. The US regulator, the Surface Transportation Board, approved the Kansas City Southern control on 15 March 2023 with conditions: gateways stay open on commercially reasonable terms, no new bottlenecks, data reporting, and seven years of oversight.7 Those conditions bind CPKC too, as I come to below.
Pricing power
The pricing power of railroads is the oldest argument for owning them, so I tested it on this one. The company says freight rates rose; it does not say by how much. The cleanest number I can build from its filings is revenue per ton-mile with the fuel surcharge taken out, because the surcharge is a pass-through. That rose 1.9% in 2025, and 0.5% in the first nine months of 2026 (calculated).73 Part of the 2025 gain was currency: the weaker Canadian dollar added C$154M to revenue.7 Revenue per carload without fuel rose 2.4% in 2025 and 3.2% in the nine months (calculated). The per-carload figure is higher because the extra grain moves a long way to Mexico, which adds miles and lowers the revenue per mile.3
Price, with and without fuel
Revenue per ton-mile and per carload, the company’s totals, with the fuel surcharge taken out by me.
| 2024 | 2025 | Change | 9M 2025 | 9M 2026 | Change | |
|---|---|---|---|---|---|---|
| Freight revenue per RTM, cents (reported) | 6.73 | 6.73 | 0% | 6.70 | 6.98 | +4% |
| Fuel surcharge revenue, C$M (reported) | 1,651 | 1,483 | −10% | 1,110 | 1,589 | +43% |
| Ex-fuel revenue per RTM, cents (calculated) | 5.95 | 6.06 | +1.9% | 6.02 | 6.05 | +0.5% |
| Ex-fuel revenue per carload, C$ (calculated) | 2,877 | 2,945 | +2.4% | 2,906 | 2,999 | +3.2% |
What I take from that: rates are going up, probably by about the cost inflation the company faces and not much more. Union Pacific’s 10-Q credits volume, core pricing gains, productivity and lower acquisition costs for the 0.1 point improvement in its third-quarter ratio, in a quarter when its costs also rose.14 That is a business that can pass on cost, not one that can raise its margin at will. A railroad has some choice. Where there is a truck or a second railroad it competes; where there is a mine or a plant on the track, it prices up to the point the regulator or the customer pushes back. In Canada the regulator caps western grain revenue by formula, sets the rates other railroads pay to use CPKC’s line for short hauls, and can hear complaints about rates and service.7 In the US the Board has the same sort of powers.7 In Mexico the company must register its maximum rates, and if the Antitrust Commission finds no effective competition on a movement, the regulator could set the rate or grant limited trackage rights to another railroad.7 Pricing power here is real, and it is policed.
Where it is thin
Four things. First, the Mexican exclusivity ends in 2037, and the 2025 10-K says other concessionaires have rights on the network and that a passenger service may be added.7 Second, the Kansas City Southern conditions, and the chance that regulators add more: the Board may issue supplemental orders.7 Third, Union Pacific’s agreement to acquire Norfolk Southern would create a railroad of over 50,000 miles across 43 states. The Board accepted the revised application in May 2026 and set a schedule in August, and Union Pacific expects to finish in the second half of 2027 if it is approved.14 CPKC has spent C$44M in nine months on analysis and advocacy in that review.3 I don’t know what it is asking for, and the filings don’t say. Fourth, the labour contracts. A work stoppage began on 22 August 2024, and operations restarted on 26 August under an order for binding arbitration; the resulting agreements run to 31 December 2027 with annual wage increases of 3%.117 The next round falls in the middle of the years I model.
Capital intensity is the quiet part. Depreciation was 13% of revenue in 2025, and capital spending was C$3.1B, 21% of revenue, of which about C$1.5B renewed worn track, ties, signals and bridges.7 The 2026 plan is C$2.65B, 16%.6 I come back to what counts as stand-still in Financials.
The competitive advantage
The question is what CPKC can do that others can’t. On the evidence, the answer is a network nobody else has and a method of running it that keeps the cost low. The second is not a secret, since the rivals use similar methods, so it counts only as long as CPKC keeps doing it better.
The method is called precision scheduled railroading. In plain words: run trains to a timetable, make them longer and heavier, and use fewer locomotives, cars and people for the same freight. The 10-K lists the five parts of the company’s version: service, cost control, asset use, safety and people.7 The results are in the numbers. In 2025 gross ton-miles rose 4% on 1% more train miles, and average employees fell from 20,144 to 19,967 while revenue rose 4%.7 In the nine months to September 2026 employees fell another 1% while workload rose 5%, and fuel burned per thousand gross ton-miles fell 3%.3 On safety, the company reports the lowest FRA-reportable train accident frequency among Class I railroads for the third year running: 0.85 per million train miles in 2025.69
Against its closest rivals
The rivals are the other North American Class I railroads. The chart shows the operating ratio of each in the third quarter of 2026, as reported and as the company adjusts it where it does. CPKC is fourth of five on both measures: 0.9 points behind CN on the adjusted figure and 2.8 behind Union Pacific, and well ahead of Norfolk Southern.
Operating ratio of five railroads, third quarter of 2026
Per cent of revenue; lower is better. CSX’s ratio is 100 less its reported operating margin of 39.1%
- Reported
- Company-adjusted CPKC core, CN adjusted
Show the numbers
| CPKC | CN | Union Pacific | CSX | Norfolk Southern | |
|---|---|---|---|---|---|
| Reported (reported) | 64.8% | 63.7% | 59.1% | 60.9% | 67.4% |
| Company-adjusted (reported) | 61.9% | 61.0% | 59.1% | 60.9% | 67.4% |
Two cautions. A quarter with a fuel spike treats each railroad differently, depending on how it books its surcharge, so I would not read the gaps closely. And the full-year 2025 numbers tell a different story: on its core measure CPKC’s 59.9% was level with Union Pacific’s 59.8%, though on a reported basis it was 62.8% against 59.8% (calculated).187 Norfolk Southern was 64.2% and CSX 67.9% (calculated).1920 By the first nine months of 2026 the core gap to Union Pacific had opened to 2.4 points.314 CPKC’s edge is not that it has the lowest ratio. It is that it has the only network that does not have to hand a through route to anyone, and a ratio that has been in the same range as the best.
Five railroads, side by side
Operating ratio for the third quarter and the first nine months of 2026, and the full year 2025, per cent; lower is better.
| Q3 2026 | Nine months 2026 | Full year 2025 | |
|---|---|---|---|
| CPKC, reported (reported) | 64.8 | 65.1 | 62.8 |
| CPKC, core adjusted (reported) | 61.9 | 62.1 | 59.9 |
| CN, reported (reported) | 63.7 | 63.6 | – |
| CN, adjusted (reported) | 61.0 | 62.4 | – |
| Union Pacific (reported) | 59.1 | 59.7 | 59.8 |
| CSX, 100 less operating margin (calculated) | 60.9 | 62.1 | 67.9 |
| Norfolk Southern (reported) | 67.4 | 68.5 | 64.2 |
What the advantage is not
It is not a cost advantage over Union Pacific, whose ratio is about two to three points lower on the 2026 numbers; I can’t tell from the filings how much of that is network, mix, age of track or Mexico. It is also not a toll position like a pipeline’s, where a regulator sets a return. A railroad’s margin is for it to earn or lose, quarter by quarter, which is why I read the 2026 numbers closely: the reported operating ratio rose 90 basis points in the second quarter and 130 in the third while volume grew, and fuel explains only part of it.215 The company expects volume and earnings growth to accelerate in the second half. Core adjusted EPS grew 16% in the third quarter, helped by 3.7% fewer shares and a 10% rise in operating income at constant exchange rates.213
New supply
The risk to the advantage isn’t a competing railroad. It is that the flows change. The Mexican part depends on US-Mexico trade, Asian goods at Lázaro Cárdenas and Mexican plants selling to the US; the 10-K says tariffs, border taxes or a failure to preserve trade terms could cut volume.7 CN’s third-quarter report ties its lower lumber volumes in part to higher cross-border tariffs, and CPKC’s forest products revenue is down 2% in nine months.173 I come back to this in Risks.
Management
Keith Creel, 57, has run the company since 31 January 2017 and was named the first chief executive of CPKC on 14 April 2023. He joined Canadian Pacific in 2013 as president and chief operating officer, and joined its board in 2015.7 Nadeem Velani is chief financial officer, Mark Redd chief operating officer, John Brooks chief marketing officer and James Clements runs strategic planning and corporate services. Oscar Del Cueto runs the Mexican company, where he has worked since 2006.7 Isabelle Courville chairs the board.9 The team is long-serving and mostly promoted from inside, which is the good version. It is also a team whose record is one railroad model applied twice, first to Canadian Pacific and now to a merged company of a different shape.
How they are paid, and what that pays them to do
Creel’s 2025 pay was C$25.7M: C$1.89M of salary, C$12.0M of stock awards, C$6.8M of options, a C$3.76M bonus, C$0.88M of pension value and C$0.33M of other items. It was C$23.6M in 2024 and C$20.1M in 2023 (calculated).9 His pay is 183 times the median employee’s, 164 times if Mexico is left out.9 The board says 93% of his target pay is at risk.9
The annual bonus is 75% company results and 25% individual. The company part had four measures in 2025: operating ratio (35%), operating income (35%), and two safety measures (15% each).9 The result was 121% of target. The operating ratio came in at its target of 60.4%, operating income at C$6,112M against a target of C$6,216M scored 73%, and both safety measures hit the maximum.9 The board then capped Creel’s individual rating at 100% because, it said, results were strong but short of expectations, and did the same for 30 other officers.9 That is a fair thing to have done. Long-term pay is 60% performance share units, which vest after three years on free cash flow, total shareholder return against the TSX 60, and total shareholder return against the S&P 500 industrials, and 40% options with a seven-year life.93 The 2023 units paid 91% of target in 2026.3
I read this two ways. The bonus pays for lowering the operating ratio and raising operating income, and safety: all three are things a railroad can do well. It does not pay on return on the capital used. The company’s own core adjusted return on invested capital was 6.9% in 2025 and 6.7% in 2024, which is well below the 9.0% I ask of the shares and under my estimate of the company’s blended cost of capital, near 8% (estimate).6 And the options and share-price units pay more when the share price is higher, and buybacks help the share price. I don’t say that is why they buy back stock. I say it is the incentive in the room.
How much of their own money is in
A fair amount. Creel holds 99,898 shares and 167,445 deferred share units, together worth about US$24.5M at today’s price, and 2.17M options on top.9 The board puts his holding at 14.6 times salary at the end of 2025 against a requirement of 7 times, and every named executive has met his minimum except John Brooks, who has until January 2029.9 All directors and executive officers together own 280,068 shares directly and 2.4M that they can acquire within 60 days, which is under 1% of the company.9 Directors must take at least half their pay in deferred share units, and several own no shares outright, only units.9 Among outside holders, TCI Fund Management, the fund run by Chris Hohn, held 45.3M CPKC shares, worth US$3.93B, at 30 June 2026, about 5% of the shares then outstanding and 7% of TCI’s listed US holdings; the 10-K/A cites an earlier filing with 55.5M.229 That is a fact about a holding. It is not a statement about price.
What they did with capital over a full cycle
What management did with the money
Major uses of capital since 2016, and my reading of each.
| Move | What it cost or raised | My reading |
|---|---|---|
| Buybacks before the merger, 2016 to 2020 | C$5.3B in five years, with the share count, adjusted for the 2021 split, falling from 753M to 680M4 | Done when the stock was C$38 to C$88 a share. It worked: diluted earnings per share rose 14% a year to 2020 on revenue growth of 5.5% a year (calculated) |
| Kansas City Southern, 2021 to 2023 | C$35.8B (US$27.9B): 262.6M new CPKC shares, US$8.2B of cash and US$1.4B to cover the termination fee owed to CN12 | The largest decision in the cycle. It made C$17.5B of goodwill at the control date, raised the share count by 37% and net debt from 2.3 to 5.0 times EBITDA, and the core return on invested capital is 6.9% (calculated) |
| No buybacks, 2021 to 2024 | Dividends only, C$507M in 2021 and C$707M to C$709M a year after4 | The right call while the debt and the integration were being worked off |
| Buybacks, 2025 and 2026 | C$3.9B in 2025 at C$107.61 a share, and C$3.4B in the first nine months of 2026 at C$121.9573 | Funded in part with debt. At my base value of C$92 the 2026 purchases were made 33% above it; I work out the cost in Valuation (estimate) |
| Panama Canal Railway sale, 2025 | US$350M for a 50% stake; pre-tax gain US$232M7 | Sold at a profit. A small, sensible disposal |
| Dividend | C$0.268 a quarter from 2026, up 17.5% from C$0.228323 | A rising but small payout: 22% of core earnings per share (calculated) |
| Debt | Long-term debt including current maturities C$9.8B in 2020, C$23.2B at the end of 2025, C$25.8B at 30 September 202643 | Most of the rise is Kansas City Southern. Since the end of 2025 it has risen another C$2.7B, part of it currency (calculated) |
On the whole this is a competent, disciplined operating team that bought the one asset it wanted at a high price, and has since done what it said on cost. The buyback is the part to look at, because it is where the capital decision is being made now. In nine months of 2026 the company paid C$3.39B for 27.7M shares and C$0.64B in dividends, C$4.03B in all, while the cash left after capital spending was C$2.20B (calculated).3 So 45% of the payout, C$1.83B, was borrowed. Repurchases averaged C$128.80 in the third quarter, with the shares near their August high.3 A buyback paid for with borrowed money at a price above the owner’s estimate of value is an expensive way to shrink the share count, and on my numbers that is what 2026 is. The company knows the business better than I do and may think the shares are worth more. I can only say that the price paid is above my base value, and below my bull.
Financials
Reading the statements takes care, because five things in them do not mean what they seem to.
- Reported margin includes accounting for the merger. About 2.2 points of the 2026 operating ratio are extra depreciation from marking Kansas City Southern’s assets up to the purchase price, C$357M a year, and a little integration cost. None of it is cash.3 The company’s core measure takes it out. I use the core measure when I look forward and the reported one when I look back, and I say which.
- Revenue includes fuel. A fuel surcharge passes the cost of diesel to the shipper at no margin, so higher diesel raises revenue and lowers the margin percentage at the same time. It was 13% of freight revenue this year, 10% last year.37
- Kansas City Southern is in the figures from 14 April 2023. Revenue in 2022 was C$8.8B and in 2024 C$14.5B, and almost none of that jump is growth.4 Per-share figures and rates of return are the safer guide through the break.
- Earnings include pension income. CPKC has a pension surplus of C$5.4B, and the plan’s expected returns produced C$331M of income in nine months, which is not cash. It is taken out of cash flow, and I leave it out of my model.3
- Taxes jump around. The tax rate was 32.8% in the third quarter because of a C$94M Canada Revenue Agency reassessment tied to the Kansas City Southern purchase and a C$17M Mexican settlement. Core tax is about 24.75%.3
Ten years and the last twelve months
Calendar years, C$ unless marked; as reported in each year’s filing. * Operating cash flow less additions to properties and, from 2023, Meridian Speedway.
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | TTM | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue (reported) | C$6,232M | C$6,554M | C$7,316M | C$7,792M | C$7,710M | C$7,995M | C$8,814M | C$12,555M | C$14,546M | C$15,078M | C$16,007M |
| Operating income (reported) | C$2,411M | C$2,519M | C$2,831M | C$3,124M | C$3,311M | C$3,206M | C$3,329M | C$4,388M | C$5,179M | C$5,609M | C$5,830M |
| Operating ratio, reported (calculated) | 61.3% | 61.6% | 61.3% | 59.9% | 57.1% | 59.9% | 62.2% | 65.0% | 64.4% | 62.8% | 63.6% |
| Earnings to common holders (reported) | C$1,599M | C$2,405M | C$1,951M | C$2,440M | C$2,444M | C$2,852M | C$3,517M | C$3,927M | C$3,718M | C$4,141M | C$3,864M |
| Diluted EPS (split-adjusted) (reported) | C$2.13 | C$3.29 | C$2.72 | C$3.50 | C$3.59 | C$4.18 | C$3.77 | C$4.21 | C$3.98 | C$4.51 | C$4.33 |
| Diluted shares, millions (reported) | 752 | 732 | 716 | 696 | 680 | 683 | 933 | 934 | 935 | 917 | – |
| Operating cash flow (reported) | C$2,089M | C$2,182M | C$2,712M | C$2,990M | C$2,802M | C$3,688M | C$4,142M | C$4,137M | C$5,269M | C$5,309M | C$5,776M |
| Capital spending, all (reported) | C$1,182M | C$1,340M | C$1,551M | C$1,647M | C$1,671M | C$1,532M | C$1,557M | C$2,499M | C$2,863M | C$3,140M | C$2,848M |
| Cash after capital* (calculated) | C$907M | C$842M | C$1,161M | C$1,343M | C$1,131M | C$2,156M | C$2,585M | C$1,638M | C$2,406M | C$2,169M | C$2,928M |
| Buybacks (reported) | C$1,210M | C$381M | C$1,103M | C$1,134M | C$1,509M | C$0M | C$0M | C$0M | C$0M | C$3,942M | C$3,785M |
| Dividends paid (reported) | C$255M | C$310M | C$348M | C$412M | C$467M | C$507M | C$707M | C$707M | C$709M | C$796M | C$848M |
| Dividends declared per share (reported) | C$0.37 | C$0.44 | C$0.50 | C$0.63 | C$0.71 | C$0.76 | C$0.76 | C$0.76 | C$0.76 | C$0.87 | C$0.99 |
| Net debt (calculated) | C$8,520M | C$7,821M | C$8,635M | C$8,624M | C$9,624M | C$20,058M | C$19,200M | C$22,030M | C$21,884M | C$23,004M | C$25,447M |
| Net debt over EBITDA (calculated) | 2.8x | 2.5x | 2.4x | 2.3x | 2.4x | 5.0x | 4.6x | 3.7x | 3.1x | 3.0x | 3.2x |
The operating ratio, as reported
Operating expenses divided by revenue, per cent; lower is better
- Reported operating ratio 63.6%, TTM
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | TTM | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating ratio (calculated) | 61.3% | 61.6% | 61.3% | 59.9% | 57.1% | 59.9% | 62.2% | 65.0% | 64.4% | 62.8% | 63.6% |
The latest quarter
The third-quarter report on 28 October showed revenue up 15% to C$4.22B, of which C$244M was higher fuel surcharge and C$65M currency; volume in ton-miles rose 6% and freight revenue per ton-mile 9%.35 Operating income rose 11% to C$1.49B and 10% at constant exchange rates. Core adjusted EPS was C$1.28 against C$1.10. The core operating ratio was 61.9% against 60.7%, with fuel to blame for 190 points of the 120-point rise, which means that without fuel the ratio would have improved.5 Cash from operations was C$1.55B against C$1.27B, capital spending fell to C$0.62B from C$0.86B, and the company’s adjusted free cash was C$1.02B against C$0.42B.35 Net income was flat at C$917M because of the tax items above. The shares closed at US$89.43 on the day of the report and US$88.37 the day after; they have since regained it, closing at US$91.49.1 I cannot say why the move was small. The quarter was in line with a company that had said it was on track.
What an owner can really take out
Here is the sequence that matters. Over the twelve months, operating cash flow was C$5.78B. The company spent C$2.85B on property, including C$25M on Meridian Speedway, a venture in which Norfolk Southern holds a minority stake. That leaves C$2.93B (calculated). At today’s price of C$111B for the shares, that is a cash yield of 2.6%. Dividends were C$0.85B and buybacks C$3.79B. Together they were 1.6 times the cash left, and the difference came from net new debt.
Cash after capital spending, against what was paid out
C$. Cash after capital is operating cash flow less additions to properties, including Meridian Speedway
- Cash after capital C$2.93B, TTM
- Dividends plus buybacks C$4.63B
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | TTM | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating cash flow (reported) | C$2,089M | C$2,182M | C$2,712M | C$2,990M | C$2,802M | C$3,688M | C$4,142M | C$4,137M | C$5,269M | C$5,309M | C$5,776M |
| Capital spending (reported) | C$1,182M | C$1,340M | C$1,551M | C$1,647M | C$1,671M | C$1,532M | C$1,557M | C$2,499M | C$2,863M | C$3,140M | C$2,848M |
| Dividends (reported) | C$255M | C$310M | C$348M | C$412M | C$467M | C$507M | C$707M | C$707M | C$709M | C$796M | C$848M |
| Buybacks (reported) | C$1,210M | C$381M | C$1,103M | C$1,134M | C$1,509M | C$0M | C$0M | C$0M | C$0M | C$3,942M | C$3,785M |
That is not a flaw by itself. Every large company that retires shares and holds its leverage ratio at a steady level borrows as its profits grow. What it means for a holder is that the buyback is not a return of cash from the business. It is a purchase made partly on credit. If the company stopped it, there would be about C$2.1B a year after the dividend to spend on something else, or to pay down debt. That is the true free cash today.
How much of the capital spending is the price of standing still? The 10-K says C$1.5B of 2025’s C$1.7B on track and roadway went to renewing worn assets.7 Depreciation without the purchase-accounting part is about C$1.7B a year, which is the cost of the assets at what they were bought for. Replacing at today’s prices costs more. I put the stand-still part at C$2.0B to C$2.5B, 12% to 15% of revenue (estimate). At that range the cash an owner could take out without growth would be C$3.3B to C$3.8B, a yield of 3.0% to 3.4%. I deduct all the capital in my model, because growth in revenue is what I pay for, and the cost of growth is part of the price.
Stock pay is a small matter. Total stock-based compensation was C$182M in nine months, almost all of it units paid in cash and so already in operating cash flow; the options granted in 2026 had a fair value of about C$30M.3 I take nothing more off for it. Canada now charges 2% on net buybacks, C$65M in nine months, which is already in the cash paid out.3 Cash taxes were C$1.14B over the twelve months, about 20% of pre-tax earnings at the core level, below the 24.75% book rate because of deferred tax, which is C$12.3B on the balance sheet (calculated).37 I model cash taxes at 21.5%.
Net debt against EBITDA
Debt including current maturities, less cash, divided by operating income plus depreciation and amortization
- Net debt / EBITDA 3.2x at 30 September 2026
Show the numbers
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | Sep 2026 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Net debt / EBITDA (calculated) | 2.79x | 2.46x | 2.45x | 2.25x | 2.35x | 4.99x | 4.59x | 3.71x | 3.09x | 3.02x | 3.22x |
Balance sheet
At 30 September 2026 CPKC had C$25.8B of debt, C$3.6B due within a year, including US$1.54B of commercial paper, and C$0.4B of cash.3 Net debt over EBITDA was 3.2 by my count and 3.2 by the company’s, which also counts leases and a pension plan deficit.5 Net interest was C$934M over the twelve months, which operating income covers 6.2 times (calculated). The debt is cheap: the bonds are carried at C$23.7B and the market values them at C$21.0B, because coupons are below today’s rates.3 New debt is not: in October the company sold C$1.8B of notes at 4.2% to 5.4% for 3.5 to 30 years.3 A US$2.2B revolving credit facility is undrawn.3 Ratings are BBB+ with a positive outlook from Standard & Poor’s and Baa1 stable at Moody’s.3 Goodwill is C$19.1B, 42% of shareholders’ equity, and deferred tax liabilities are C$12.3B.3
Debt is cheap and safe at 3.2 times. The point for an owner is that at constant leverage the debt grows with the business, so about C$1.5B of new borrowing in 2027 is part of what pays the dividend and the buyback.
Valuation
First, how this goes badly wrong
Before the numbers, I asked what would most likely hurt an owner here, and worked back. Three things stand out.
- The volume goes and the cost doesn’t. A railroad’s cost is mostly fixed. Cross-border trade is the new part of CPKC’s franchise, and it is the part that trade policy can cut. A tariff war that takes two points off revenue growth in 2027 and one in 2028 costs about US$3 a share in my base, and a severe one that takes three points off growth for two years, two in a third, and also lifts the operating ratio by up to 0.8 points costs US$7 (estimate). Each point of operating ratio is C$164M of operating income, about C$0.14 of EPS, and about US$2 a share.
- Paying for the shares with borrowed money at a high price. In nine months of 2026 the company bought back more than twice the cash it had left after capital and the dividend, and 45% of the payout was borrowed.3 At a price above value, each buyback transfers value from continuing holders to those who sell. If rates are 1 point higher on all the debt and I also ask 10%, my base falls to US$54.
- Mexico. The Mexican part is 18% of revenue and 20% of the assets, under a concession that ends in 2047 with the assets going back to the state, under tax assessments of C$499M for 2014 alone in dispute, and under a government that, the 10-K says, can change policy on taxes, wages, pensions and transport.7 If the concession is not renewed, my base falls only US$3, because the cash is far away and the discount heavy. The larger risk is not the end date. It is the years between now and then.
None of these needs anything exotic. They set my bear case. They also explain why I start from the cash that actually reaches an owner and not from earnings, and why I test the whole answer against the operating ratio.
How I built it
I value the cash that could be paid to common holders after the company funds all its own capital. The steps are plain. Start with 2026: revenue of C$16.4B and a core operating ratio of 60.8%, which is the nine months as reported plus a fourth quarter at 57.2% on revenue 10% higher than last year’s fourth quarter (estimate).36 That gives core EPS of about C$5.09, in line with the guide of low double-digit growth from C$4.61. For each year from 2027 I take revenue growth and a core operating ratio from the case; add depreciation excluding purchase accounting at 10.5% of revenue to get EBITDA; keep net debt at 3.2 times EBITDA, as it is now; charge interest on average net debt; charge cash tax of 21.5% on operating income less interest; and take off capital spending as a share of revenue. What is left, plus the new borrowing that holds the leverage ratio, is owner cash (estimate).
I discount owner cash at 9.0% with cash at the end of each year, starting with a fourth quarter of 2026 worth C$1.56B, which is operating cash flow less capital plus the C$0.65B of borrowing needed to keep leverage at 3.2 times. I subtract C$979M for the Norfolk Southern stake in Meridian Speedway at book and divide by 870.5M shares, which is the 869.6M outstanding on 27 October plus about one million in dilutive options.3 After 2036 growth continues at 2.5% in the base, at a lower capital rate. Eighteen per cent of the terminal value is the Mexican part, matching its share of revenue; in each case it is either renewed (75% in the base) or runs off over the 10.5 years to mid-2047 and then stops. Exchange rate: all flows are in Canadian dollars at a constant rate and are translated at 1.3978 to give US dollars (estimate).10
Two things in that setup are worth saying out loud. The first is that the value is not very sensitive to the margin. If the operating ratio sits at 55% from 2027, a level no filing in the table shows, my base is US$72; if it sits at 62%, it is US$56 (estimate). Each point of the ratio is worth about US$2 a share, so a swing from 55% to 62% moves the value by US$16. The second is that capital intensity is not the swing factor either: if capital is 6% higher than I assume every year, my base falls to US$63.
Three cases
Years 2027 to 2036; owner cash is after tax, interest and all capital, with leverage held at the stated ratio.
| Bear | Base | Bull | |
|---|---|---|---|
| Revenue growth a year, 2027 to 2036 (estimate) | 2.9% | 4.4% | 5.7% |
| Core operating ratio, 2027 and 2036 (estimate) | 61.2% and 61.5% | 60.2% and 57.5% | 59.7% and 55.5% |
| Capital spending, share of revenue, 2027 and 2036 (estimate) | 19.0% and 18.5% | 17.0% and 16.0% | 16.0% and 15.0% |
| Interest rate on net debt (estimate) | 5.3% | 4.5% | 4.2% |
| Net debt over core EBITDA (estimate) | 3.2x | 3.2x | 3.2x |
| Cash tax rate on operating income less interest (estimate) | 23.5% | 21.5% | 21.5% |
| Growth after 2036 (estimate) | 2.0% | 2.5% | 3.0% |
| Chance Mexico’s concession is renewed in 2047 (estimate) | 0% | 75% | 100% |
| Core operating income 2036, C$B (calculated) | 8.4 | 10.7 | 12.8 |
| Operating income growth a year, 2026 to 2036 (calculated) | 2.7% | 5.2% | 7.1% |
| Owner cash per share, 2036, C$ (calculated) | 4.95 | 8.26 | 10.92 |
| Value per share, US$ (estimate) | US$38 | US$66 | US$89 |
| In Canadian dollars (calculated) | C$53 | C$92 | C$125 |
| Return a year at US$91.49 (calculated) | −2.1% | 4.6% | 8.8% |
Source Q3 2026 10-Q and release; 2025 10-K; 2026 guidance [3][5][7][6]. Assumptions and values are my estimates.
Core operating income in my three cases
C$ billions: bear to bull, with the base marked
- Bear to bull C$8B to C$13B in 2036
- Base, 2036 C$10.7B
Show the numbers
| 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 | 2036 | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Bear (estimate) | C$6.4B | C$6.5B | C$6.7B | C$6.9B | C$7.0B | C$7.2B | C$7.5B | C$7.7B | C$7.9B | C$8.2B | C$8.4B |
| Base (estimate) | C$6.4B | C$6.9B | C$7.3B | C$7.8B | C$8.2B | C$8.6B | C$9.1B | C$9.5B | C$9.9B | C$10.3B | C$10.7B |
| Bull (estimate) | C$6.4B | C$7.0B | C$7.7B | C$8.3B | C$9.0B | C$9.7B | C$10.3B | C$11.0B | C$11.5B | C$12.2B | C$12.8B |
The base path, year by year
C$ billions unless marked; 2026 revenue of C$16.4B and a core ratio of 60.8% are the start.
| 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2035 | 2036 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Revenue, C$B (estimate) | 17.2 | 18.1 | 19.0 | 19.8 | 20.7 | 21.6 | 22.4 | 23.3 | 24.3 | 25.2 |
| Core operating ratio (estimate) | 60.2% | 59.6% | 59.1% | 58.7% | 58.3% | 58.0% | 57.8% | 57.6% | 57.5% | 57.5% |
| Core operating income, C$B (estimate) | 6.9 | 7.3 | 7.8 | 8.2 | 8.6 | 9.1 | 9.5 | 9.9 | 10.3 | 10.7 |
| Operating cash flow, C$B (estimate) | 6.2 | 6.6 | 7.0 | 7.4 | 7.8 | 8.1 | 8.5 | 8.8 | 9.2 | 9.6 |
| Capital spending, C$B (estimate) | 2.9 | 3.1 | 3.2 | 3.3 | 3.4 | 3.5 | 3.7 | 3.8 | 3.9 | 4.0 |
| Cash after capital, C$B (estimate) | 3.3 | 3.6 | 3.8 | 4.1 | 4.3 | 4.6 | 4.8 | 5.1 | 5.3 | 5.5 |
| Net debt, C$B (estimate) | 28 | 29 | 31 | 33 | 35 | 36 | 38 | 39 | 41 | 43 |
| Owner cash after new borrowing, C$B (estimate) | 4.9 | 5.3 | 5.6 | 5.7 | 6.1 | 6.2 | 6.4 | 6.7 | 7.0 | 7.2 |
| Owner cash per share, C$ (estimate) | 5.68 | 6.09 | 6.44 | 6.59 | 6.99 | 7.09 | 7.36 | 7.72 | 8.00 | 8.26 |
What the price implies
At US$91.49 CPKC has a market value of C$111B (US$80B). With net debt and the minority interest the enterprise value is about C$138B, or 17.4 times trailing EBITDA, 26.1 times core earnings and 29.5 times reported earnings per share (calculated).32 The price over reported earnings at each year-end since 2016 averages 21.5; it was between 14.0 and 18.9 until 2019, and between 21.8 and 26.8 in each of the last six year-ends (calculated). So the price is above the ten-year pattern, and it has been higher since the market began to believe the merger would work. The right question is what must be true, so I ask it in reverse.
What the price needs, one input at a time
Hold all but one input at my base and solve for the one left.
| If everything else is my base, the return I must accept is | 7.1%, not 9.0% (calculated) |
|---|---|
| Or the operating ratio must be lower than my base by | 11.6 points in every year, so about 49% in 2027 and 46% in 2036 (calculated) |
| Or revenue must grow faster than my base by | 3.5 points a year, so about 7.9% a year for ten years (calculated) |
| Or growth after 2036 must be | 4.7% a year, above any rate of nominal growth I would call durable (calculated) |
The first line is the useful one. On my cash flows the market is asking for 7.1%, 1.9 points less than I do. The US ten-year Treasury yields 4.94% and the Canadian ten-year 3.78%, so that is a premium of about 2.2 points over the US bond and 3.4 over the Canadian one.2425 That could be a fair price for a business with no substitute. It could also be a market that sees a longer run of growth than I do. The second line shows how little a lower operating ratio does by itself: the ratio would have to be about 12 points better every year, which is below any ratio in the ten-year table or in the five railroads’ 2026 filings. The third line is the better test: revenue would have to grow about 7.9% a year for ten years, against 4.4% in my base and 5.7% in my bull. The fourth shows what the far future would have to do alone: growth of 4.7% a year forever (calculated).
The case that the market is right is simple. There is one network like this. Trade between the three countries is growing and Mexico is where US manufacturers are moving supply. Capital spending is falling, cash is rising, and the share count is falling 3.7% a year, which makes earnings per share grow faster than the business. A buyer at US$91.49 is accepting about 7.1% a year on my cash flows, which is 2.2 points over the US ten-year bond. If I used 8.0% my base would be US$77, and at 7.1% it reaches the price. I can’t show that rate is wrong. I can show that the price needs it.
What I can’t judge
Three inputs decide this page and I can’t know any of them. I don’t know how low the operating ratio can go with the stay-in-place level of capital the road needs; filings show 57.1% once, in 2020, on a smaller company. I don’t know what Mexico earns: the company reports revenue by country, but no profit, and I assume the Mexican part earns like the rest. And I don’t know the rate of return owners require, which moves with rates. So here is the grid. Read my US$66 as one cell in it.
Value per share, by the two things I can’t know
Down the side, the operating ratio held flat from 2027; across the top, the return I require. Everything else is my base.
| Operating ratio, held from 2027 | 8.0% | 9.0% | 10.0% |
|---|---|---|---|
| 55.0% (estimate) | US$85 | US$72 | US$63 |
| 57.5% (estimate) | US$78 | US$67 | US$58 |
| 60.0% (estimate) | US$72 | US$61 | US$53 |
| 62.0% (estimate) | US$67 | US$56 | US$49 |
| Base path, 60.2% falling to 57.5% (estimate) | US$77 | US$66 | US$57 |
A point on the rate moves my base value by about US$11 up at 8.0% and US$9 down at 10.0%: US$77 at 8.0% and US$57 at 10.0%. The operating ratio matters less. The rate is outside the company’s control, and it is what the market is guessing differently from me.
The discount rate
I use 9.0%. The Canadian ten-year yields 3.78% and the US ten-year 4.94%.2524 With Damodaran’s 4.41% implied equity risk premium, the five-year beta of CPKC’s Toronto shares against the TSX 60 ETF on month-end closes, which is 1.18, gives 9.0% on the Canadian bond; the beta of the New York shares against the S&P 500, which is 1.03, gives 9.5% on the US one (calculated).262728 Because the cash is mostly earned in US dollars and pesos and my model is in a constant Canadian dollar, I use the first and show the second in the table. Berkshire and the other pages here use 9.0%. A measured beta comes from five years that included a pandemic recovery and a big merger, and says little about what a company with C$25.8B of debt does when long rates move. The table shows the answer at other rates.
My value at other rates
Value per share in US$; the rate down the side, and either the three cases or growth after 2036 across the top.
| Bear | Base | Bull | |
|---|---|---|---|
| 8.0% (estimate) | US$44 | US$77 | US$107 |
| 9.0%, my rate (estimate) | US$38 | US$66 | US$89 |
| 10.0% (estimate) | US$33 | US$57 | US$77 |
| 11.0% (estimate) | US$30 | US$50 | US$67 |
Base value by rate and growth after 2036
US$ per share; terminal growth across the top, in nominal Canadian dollars.
| 1.5% | 2.5% | 3.5% | |
|---|---|---|---|
| 8.0% (estimate) | US$68 | US$77 | US$91 |
| 9.0%, my rate (estimate) | US$59 | US$66 | US$75 |
| 10.0% (estimate) | US$52 | US$57 | US$63 |
What it is worth, against the price
Value per share in US dollars, my estimates, against the NYSE close in Q4 2026
- Bear to bull US$38 to US$89
- Base US$66
- Price US$91.49
- Margin of safety below US$50
A cross-check against CPKC’s own history. At my base value the price over trailing reported earnings is 21.2, close to the 21.5 average for the last ten year-ends; at my bear it is 12.2 and at my bull 28.9. So my base is a fair multiple of today’s earnings and the market is paying a premium to it. I would not call my base conservative. It assumes the operating ratio keeps falling and that growth stays above 4%.
Other uses of the same dollar
The US ten-year Treasury pays 4.94% and the Canadian ten-year 3.78%, with no risk to the money (reported).2425 CPKC’s dividend yields 0.8%, before tax, and the buyback another 3.4%, partly borrowed. My base returns 4.6% a year at this price, my bull 8.8% and my bear −2.1% (estimate). The closest comparison on this site is Berkshire Hathaway, which owns BNSF, a large railroad owned outright. That page returns 6.6% on its base and 4.6% on its bear, at a price 16% above its base value. Berkshire’s bear return is level with CPKC’s base. The two pages use their own models and the same 9.0% rate, so the gap is rough, but it is a fair question to ask of the CPKC price what a holder gets here that BNSF inside Berkshire does not offer. The answer is the network, and the network is why the multiple is high. What I can’t say is that the same dollar does better here.
CPKC against the other railroad on this site
Return a year is the rate that makes today’s price equal to each page’s own base cash flows. Each page uses its own cash flows and its own model, so read the gaps as rough.
| CPKC | Berkshire Hathaway (BNSF is one part) | |
|---|---|---|
| What it provides | Freight rail across three countries, with one operating segment | Insurance, BNSF, utilities, manufacturing and $359B of cash and Treasury Bills |
| Price against my base value | 39% above | 16% above (US$542.19) |
| Return a year on my base cash flows | 4.6%, at a 9.0% rate | 6.6%, at 9.0% |
| Return a year on my bear | −2.1% | 4.6% |
| Main thing I can’t judge | How low the operating ratio can go; Mexico after 2047 | What the next chief executive does with the cash |
The margin of safety
- PriceUS$91.49Close, Q4 2026 [1]
- Base valueUS$66My estimate (estimate)
- Margin of safety belowUS$50set from my bear case (calculated)
I set the margin of safety from the bear case, because with three inputs I can’t judge, a discount to base is no protection. Below US$50, 24% under my base value, my US$38 bear value is at least three quarters of the price paid. The stock last closed below US$50 on 26 June 2020 (US$49.73).1 At US$91.49 it is above that line, about 83% above, so there is no margin of safety by this rule.
Two different questions
How good is the business, and how good is the price? On the first, this is one of the best-positioned businesses in North American freight: a unique network, a record operating ratio in 2025, a good safety record, an investment-grade balance sheet and a team that keeps its promises on cost. Its weaknesses are a 6.9% return on invested capital on a price that included C$17.5B of goodwill, capital needs of a fifth of revenue, and a buyback paid partly with borrowed money. On the second, at US$91.49 the price is 39% above my base and 3% above my bull. That looks like a good business at a high price: the price asks for my best case.
Where this could be in 5 and 10 years
These are my values in the page’s own model, in US dollars at 1.3978 and in the dollars of the year named. Value at a date is the present value, at that date and at 9.0%, of the owner cash that comes after it, divided by today’s 870.5M shares. Owner cash paid per share is the fourth quarter of 2026 plus all owner cash from 2027 to 2036. The return is the yearly rate at which today’s price grows to that cash plus the end-2036 value. I assume buybacks are made at value and no new shares are issued.3 The base is about US$75 at the end of 2031 and US$82 at the end of 2036 (calculated).10
The base in five and ten years
Value per share in US$ at the end of the year named, and owner cash paid between now and the end of 2036.
| Value per share at end of 2031 | Value per share at end of 2036 | Owner cash paid per share, 2026 to 2036 | Return a year, price to end of 2036 | |
|---|---|---|---|---|
| Bear (estimate) | US$42 | US$45 | US$32 | −2.1% |
| Base (estimate) | US$75 | US$82 | US$52 | 4.6% |
| Bull (estimate) | US$106 | US$120 | US$66 | 8.8% |
For the base to stand at five years, core operating income has to reach C$8.6B by 2031 from about C$6.4B in 2026, which is 6.1% a year, with a core operating ratio of 58.3% on revenue growth of 4.5% to 5%. For it to stand at ten years, operating income has to reach C$10.7B and net debt C$43B at 3.2 times. The bull needs 5.7% revenue growth a year and a ratio of 55.5%. The bear needs revenue growth near inflation, a ratio above 61% and no renewal in Mexico. The most likely way my base is wrong is the growth assumption: if revenue grows 1 point a year slower for ten years, the value falls to US$59 (estimate).
These are estimates of value, not forecasts of the share price, and the market price can sit above or below value for years.
The case for the price
What most people miss
Three things cut in CPKC’s favour and get less attention than the headline ratio. First, 2.2 points of the operating ratio are accounting. The extra depreciation from marking Kansas City Southern’s assets up to the price paid is about C$357M a year, it is not cash, and it fades only as the assets are written off; the core measure takes it out, which is why the reported ratio was 64.8% in the third quarter and the core one 61.9%.35 Second, without fuel the quarter improved. Fuel took 190 points off the core ratio in the third quarter, against a rise of 120, so the other costs improved by 70 points.5 Third, cash is catching up with earnings. Capital spending fell by C$279M in nine months and the company’s adjusted free cash rose from C$1.49B to C$2.36B, up 59%.35 The 2026 plan is C$2.65B of capital, 16% of revenue, down from 21% in 2025.6
The bull case
In plain words: nobody else can offer one railroad across the three countries, and trade between them keeps growing; grain, the Mexican auto plants and the new through services bring volume that the fixed cost of the track absorbs; the fourth quarter of 2025 showed a core operating ratio of 55.9%; capital spending is falling as a share of revenue; and the company is retiring about 3.7% of its shares a year, so earnings per share grow faster than operating income. Management’s own case, in the release of 28 October, is that the railroad is running well, that the long-term opportunity is large and that it expects to meet its 2026 commitments; in July it said it expected faster volume and earnings growth in the second half.521 That is the company’s view, and I report it as that. The one named outside investor I could check against a filing is TCI Fund Management, which held 45.3M shares at 30 June 2026; a holding is a fact about a position, and I found no published case from TCI on CPKC. I found no named analyst view that I could verify against its source, so I name none.22
Against reality
Today’s numbers support the first half and lag on the second. Volume is up 4% in nine months against a guide of mid-single digits, and core EPS is up 9% against a guide of low double digits.36 The core operating ratio is 62.1% for the nine months, against 61.3% a year ago; my bull needs 59.7% for 2027.3 The Mexican business is 18% of revenue and grew 3% in 2025.7 Capital is 17.8% of revenue over the twelve months, with my bull at 16% and then 15%. Owner cash is C$2.9B over the twelve months against the C$3.7B my bull needs for 2027 (calculated).
If the operating ratio reaches the mid-50s, revenue grows more than 6% a year for four years, and capital falls to 15% of revenue, my bull of US$89 follows. Even then US$91.49 needs an owner to accept 8.8% a year, not 9.0%. Today the score is: capital yes, volume partly, ratio no, growth in Mexico not yet known.
Multiply it out for the bull. Revenue growth of 6.5% for four years, when the guide is mid-single digits: 30%, my guess. An operating ratio at 59.7% in 2027, when it is 62.1% for the nine months: 25%. Capital falling to 15% of revenue: 40%. Borrowing at 4.2% when the company just sold 30-year notes at 5.4%: 35%. A renewed Mexican concession: 75%. Together that is about 1%. They overlap, so perhaps 8%. The 25% I give the bull in my weighted value of US$65 is, if anything, generous (estimate).
What a 10x would take. Ten times US$91.49 is US$915, about US$796B of market value, or C$1.1 trillion. At today’s 26.1 times core earnings that needs core EPS of C$49 against C$4.90, which is about C$43B of earnings on the same shares. At a core operating ratio of 55%, a level it has never reported for a full year, that is revenue of about C$127B, 7.9 times today’s C$16.0B, and by 2036 it is earnings growth of 26% a year for ten years. The ten years in the table above gave earnings per share 8.7% a year and a Toronto share price 3.3 times higher, with a C$36B acquisition inside it. If instead the multiple doubled to about 52 times with no growth, a tenfold move would still need five times the earnings. Tenfold moves from this size are very rare and have come from new markets that grew many times over, not from a railroad that moves a fixed network’s worth of freight and spends a fifth of its revenue on keeping the track. Tenfold from here is close to impossible, and I would not build anything on it.
What they have to hit
Six numbers on a fixed schedule. The price needs my bull case; thresholds agree with the signposts below.
| Indicator | Today | What the case needs | Where to track it | Next check |
|---|---|---|---|---|
| Core adjusted operating ratio | 60.6% for the twelve months (calculated); 62.1% for nine months of 2026; 61.9% in Q335 | My base is 60.2% for 2027 and 58.7% for 2030; the price needs my bull: 59.7% and 57.2% (estimate) | Quarterly results release, Non-GAAP Measures, Core adjusted operating ratio | Q4 and full-year results, expected late January 2027 (not yet announced) |
| Volume, in revenue ton-miles | Up 4% for nine months; up 6% in Q3; 2026 guide mid-single digits36 | Revenue growth of 5% in 2027 for the base and 6.5% for the bull, which needs volume of 3% to 4% plus price (estimate) | 10-Q, MD&A, Results of Operations, Revenue ton-miles table; results release headline | Q4 and full-year results, expected late January 2027 |
| Cash after capital | C$2.93B over twelve months (calculated)3 | C$3.3B for 2027 in the base and C$3.7B in the bull; C$4.1B and C$4.9B for 2030 (estimate) | Cash flow statement: operating activities less Additions to properties and Meridian additions | Q4 and full-year results; 10-K, late February 2027 (expected) |
| How buybacks are funded | Adjusted free cash C$2.36B for nine months against C$3.39B of buybacks and C$0.64B of dividends; adjusted net debt over adjusted EBITDA 3.2x53 | Buybacks no larger than adjusted free cash less dividends, and leverage at or under 3.2x (estimate) | Results release, Adjusted Free Cash and Adjusted Net Debt to Adjusted EBITDA reconciliations | Q4 and full-year results, expected late January 2027 |
| Mexico revenue | C$2.71B in 2025, 18% of the total, up 3%7 | Growth at least level with the company, about 5% a year, so C$2.85B for 2026 (estimate) | 10-K, Note 28, Segmented and geographic information; published once a year | 10-K for 2026, expected late February 2027 |
| Union Pacific and Norfolk Southern review | Revised application accepted May 2026; schedule set 18 August 2026; Union Pacific expects completion in the second half of 202714 | A decision that keeps through routes and interchanges open to CPKC on reasonable terms (estimate) | Union Pacific 10-Q, Merger note; the Board’s decisions in the proceeding | Next Board decision in the proceeding; no date announced that I could find |
Where I come down
The fall in capital spending and the strength of cash in 2026 moved me, but the record 2025 operating ratio did not, because the 2026 nine-month ratio is 0.8 points worse. What would raise my values is evidence on the inputs I can’t see: the Mexican business’s own profit, and an operating ratio under 60% on a full year with fuel steady. At US$91.49 the price is 39% above my base, above my bull, and above my US$50 margin-of-safety price.
Risks, and what would change my view
The three ways this goes badly wrong are at the start of Valuation. These are the rest.
- Rates and refinancing. C$3.6B of debt falls due within a year, including US$1.54B of commercial paper.3 Each point on the average rate costs about C$250M a year of interest on the net debt, 4% of operating income, before tax (calculated).
- Buybacks on credit. Debt rose C$2.7B in nine months. The company has 16.7M shares left under its current repurchase authority, about C$2.1B at today’s price.3 That is not a risk to solvency. It is a risk to my value if the price stays above my value.
- Labour. About three quarters of employees are union. The Canadian train-and-engine and traffic-control agreements, reached by arbitration after the stoppage in August 2024, run to 31 December 2027.7 The same unions can stop the line again after that.
- Weather and the harvest. Grain is 22% of freight revenue and the largest growth line this year, up 21%. A short crop, a wet spring, a flood or a fire on the mountain lines cuts volume.73
- Old claims. The Lac-Mégantic matters continue: the Attorney General of Québec’s claim was reduced to C$231M, and on 16 October 2026 the province agreed to annul a cleanup order and its C$95M notice of claim.3 The company is also in talks with the US Environmental Protection Agency and Justice Department over alleged Clean Air Act violations by locomotives, with no penalty it expects to be material.3
- Accounting. Goodwill is C$19.1B and intangibles C$2.9B. An impairment would not change cash, but it would change what holders think of the Kansas City Southern purchase.3
Geopolitical risk, and what it means for the value
CPKC is the only large railroad in all three countries, and it crosses both borders. The exposures are therefore trade terms, and taxes and concession rights in Mexico. The 10-K says that tariffs, quotas or other trade restrictions affecting goods between the three countries could materially reduce freight volumes, and names the scheduled 2026 joint review of the United States-Mexico-Canada Agreement as a risk to cross-border demand, pricing and long-term capital investment.7 CN’s third-quarter report, filed on 30 October, gives the latest status: on 1 July 2026 the US told its partners it would not support renewal of the agreement in its current form; the agreement stays in force through 2036 unless a party withdraws; and in August 2026 bilateral talks between Canada and the United States were suspended without agreement, after which both countries implemented or announced further reciprocal tariffs.17 CPKC’s own third-quarter filing says its risk factors are unchanged from the 10-K.3 I did not find a CPKC estimate of what a tariff costs it, and I would not trust one.
In Mexico, the 10-K lists tax reforms from 1 January 2026 that require cash deposits to contest assessments, an audit assessment of C$499M for 2014 in litigation, and disputes over the 2016 to 2019 tax years.73 The concession can be revoked on three sanctions for the same cause within five years, and it ends in 2047 with the assets returning to the state.7 The Canadian tax authority also reassessed prior years tied to the Kansas City Southern purchase; the company expensed C$94M in the third quarter and disputes the rest.3
Four scenarios, and the base value under each
My odds are judgements over the next five years, not forecasts. Each value reruns my base with the change shown.
| Scenario | Who decides | My odds, and why | Base value |
|---|---|---|---|
| Tariffs stay and the agreement is renewed only after more fighting: revenue growth 2 points lower in 2027 and 1 point lower in 2028 | The US administration, Canada and Mexico, through the joint review and other powers | About 1 in 3. The US declined to support renewal as it stands on 1 July, and Canada-US talks stopped in August, with new measures on both sides17 | US$63, from US$66 |
| A severe regime: growth 3 points lower for two years and 2 points in a third, operating ratio up to 0.8 points worse for several years | The same, after the review fails | About 1 in 8. It would need the review to fail and a lasting wall on cross-border trade that US plants in Mexico and US farmers depend on7 | US$59, from US$66 |
| A larger Union Pacific takes share on shared routes: growth 0.5 point lower and the operating ratio 0.4 points worse for good | The Surface Transportation Board, on Union Pacific and Norfolk Southern’s application | About 1 in 3 that conditions leave CPKC worse off. The Board has the application, the schedule is set and CPKC is paying for advocacy143 | US$62, from US$66 |
| Mexican concession is not renewed in 2047, so the Mexican cash stops after 10.5 more years | The Mexican government, in 2046 and 2047 | About 1 in 4, since a renewal depends on conditions I can’t see and a government 20 years from now. The base uses 3 in 47 | US$63, from US$66 |
Some of this may be in the price. The review began on 1 July, Canada and the US stopped talking in August, and the shares rose to a high of US$96.69 on 21 August.117 I can’t say what the market is reading in that. The severe tariff case costs US$7 a share, small next to the US$25 gap between the price and my base, which is why the geopolitical risk does not drive the answer: the price is already above where the model puts it before any of these. A fuel price shock helps the railroad’s revenue and hurts its ratio; I have not modelled it. Cyber attacks and derailments with hazardous goods are in the 10-K’s risk factors, and I cannot size them.7
What would change my view
Signals that move my values, in either direction.
| Signal | Today | Raises my value | Lowers my value |
|---|---|---|---|
| Core operating ratio | 62.1% for nine months3 | Under 59.7% for 2027, or under 60% for a full year with fuel steady | Above 61% for 2027 |
| Ex-fuel revenue per ton-mile | Up 0.5% in nine months3 (calculated) | Up 3% a year or more | Flat or down for a year |
| Cash after capital | C$2.93B over twelve months (calculated)3 | Over C$3.7B for 2027 | Under C$3.0B for 2027 |
| Buyback funding | 45% of payout borrowed in 20263 | Buybacks paid from cash flow; leverage under 3.2x | Net debt over adjusted EBITDA above 3.5x |
| US-Mexico-Canada trade terms | Renewal not supported as it stands; talks stopped in August17 | Agreement renewed with no new tariffs on rail freight | New tariffs on cross-border freight |
| Mexico revenue | C$2.71B in 20257 | Above C$2.85B for 2026 | Below C$2.7B |
| Union Pacific and Norfolk Southern | Schedule set; completion expected in the second half of 202714 | Conditions that protect through routes | A combined railroad with exclusive routes into Mexico |
| US ten-year yield | 4.94%24 | Under 4.0% for a year | Over 5.5% |
Sources
- 1CP daily closes, New York Stock Exchange, ten years to 2 November 2026 (opens in a new tab)
- 2CP.TO daily closes, Toronto Stock Exchange, ten years to 2 November 2026 (opens in a new tab)
- 3Canadian Pacific Kansas City Limited Form 10-Q for the quarter ended 30 September 2026 (opens in a new tab)
- 4CPKC XBRL company facts (income, cash flow and balance sheet tags, 2013 to 2026) (opens in a new tab)
- 5CPKC third quarter 2026 results news release (Ex. 99.1 to 8-K) (opens in a new tab)
- 6CPKC fourth quarter and 2025 results news release, with 2026 guidance (Ex. 99.1 to 8-K) (opens in a new tab)
- 7Canadian Pacific Kansas City Limited Form 10-K for 2025 (opens in a new tab)
- 8CP quote, NYSE-listed, last sale and 52-week range (opens in a new tab)
- 9Canadian Pacific Kansas City Limited Form 10-K/A (Part III) for 2025 (opens in a new tab)
- 10USD/CAD daily average exchange rate, series FXUSDCAD (opens in a new tab)
- 11Canadian Pacific Kansas City Limited Form 10-K for 2024 (opens in a new tab)
- 12Canadian Pacific Kansas City Limited Form 10-K for 2023 (opens in a new tab)
- 13CPKC first quarter 2026 results news release (Ex. 99.1 to 8-K) (opens in a new tab)
- 14Union Pacific Corporation Form 10-Q for the quarter ended 30 September 2026 (opens in a new tab)
- 15Norfolk Southern Corporation Form 10-Q for the quarter ended 30 September 2026 (opens in a new tab)
- 16CSX Corporation Form 10-Q for the quarter ended 30 September 2026 (opens in a new tab)
- 17CN Q3 2026 Management Discussion and Analysis (6-K, 30 October 2026) (opens in a new tab)
- 18Union Pacific Corporation Form 10-K for 2025 (opens in a new tab)
- 19Norfolk Southern Corporation Form 10-K for 2025 (opens in a new tab)
- 20CSX Corporation Form 10-K for 2025 (opens in a new tab)
- 21CPKC second quarter 2026 results news release (Ex. 99.1 to 8-K) (opens in a new tab)
- 22TCI Fund Management Ltd Form 13F-HR information table for 30 June 2026 (opens in a new tab)
- 23CPKC declares quarterly dividend of C$0.268 per share (Ex. 99.1 to 8-K) (opens in a new tab)
- 24US Treasury daily par yield curve rates, October 2026 (opens in a new tab)
- 25Government of Canada 10-year benchmark bond yield (opens in a new tab)
- 26Damodaran implied equity risk premium, 1 November 2026 (opens in a new tab)
- 27XIU.TO chart feed, month-end closes, five years (opens in a new tab)
- 28SPY chart feed, month-end closes, five years (opens in a new tab)
How the figures are labelled
(reported)Reported: taken from a filing or a price feed, as printed.
(calculated)Calculated: arithmetic on reported figures, such as a margin or a growth rate.
(estimate)Estimate: my judgement, such as a case value or a growth assumption.
The price
Close in Q4 2026: US$91.49, New York Stock Exchange, from a chart feed [1], and the same last sale on Nasdaq.com’s quote page [8]. The Toronto close was C$127.90 [2]. At the Bank of Canada’s 1.3978 per US dollar the New York price is C$127.88, within 0.02% of Toronto [10]. The company reports in Canadian dollars under US accounting; per-share values on this page are in US dollars, translated at 1.3978, and company figures are marked C$. Shares are the 869.55M outstanding at 27 October 2026 plus about one million for dilutive options [3]. Fiscal years are calendar years. The 2021 five-for-one split is applied to the per-share figures for 2016 to 2018. The company’s own core adjusted figures are labelled as such.
The valuation
Owner cash to common holders, discounted at 9.0% with cash at the end of each year from 2027 and a fourth quarter of 2026 worth C$1.56B. Each case sets revenue growth, a core operating ratio, capital spending as a share of revenue, an interest rate and a cash tax rate. EBITDA is core operating income plus depreciation excluding purchase accounting at 10.5% of revenue. Net debt is held at 3.2 times EBITDA and starts at C$25.4B at 30 September 2026. Owner cash is EBITDA less interest, cash tax and capital, plus the change in net debt. After 2036 growth is 2.5% in the base; the Mexican part of the terminal value, 18%, is renewed with a stated probability or runs off to mid-2047. C$979M of non-controlling interest is subtracted and I count no new shares in any case. All flows are in Canadian dollars at a constant rate. The yearly returns are the rate that equates the price with the cash to 2036 and the end-2036 value at 9.0%. The odds in Section VII are my guesses; the weighted value of US$65 uses 25%, 50% and 25%.
The margin-of-safety price is US$50, set from my bear case. No rating: the page states a range and the price, and leaves the decision to the reader.
Research, not investment advice. Figures as of .
Legal information and disclosures
These are my own views as of the update shown on this page. They can change without notice, and I have no duty to update them. Past performance does not indicate future results, and any investment can lose money.
This is for education only. It is not investment, legal, tax or accounting advice, and it is not an offer to sell or a solicitation to buy any security in any jurisdiction. It does not consider your goals or circumstances.
Figures from company filings and other third parties are believed to be reliable, but I have not independently verified them and cannot guarantee them. Bear, base and bull values, and anything marked as an estimate, are my own and rest on assumptions that may prove wrong.
Please do not copy or republish this material without my written consent.