Canadian Pacific will gain momentum through the fourth quarter at a time when many companies are expecting the opposite, JPMorgan said. The rail company broke its all-time monthly tonnage record for grain shipments in October. Grain is helping fuel what analyst Brian Ossenbeck expects to be even bigger upside in the fourth quarter than previously expected as strong potash and intermodal shipments drive demand. He named Canadian Pacific a top pick and has an overweight rating. The stock is up 4.7% this year, meaning it’s outperforming the S & P 500 , which has lost 20%. Canadian rails have been one of the few bright spots during the most recent corporate earnings season as they felt tailwinds from increasing volumes, stronger rate renewals and easing U.S. labor and foreign currency challenges. Earnings have been a mixed bag this season as inflation has made it difficult for companies that benefited from the pandemic to sustain growth. Grain shipments increased 9.8% in the third quarter compared to the same period a year ago. “Canadian rails looked like the only real winners coming out of earnings,” Ossenbeck said in a note to clients. Canadian Pacific will benefit from a new investment in a hopper car fleet in the fourth quarter, he said. The company is also entering the final stages of a merger with Kansas City Southern. Kansas City Southern has refined products coming faster than expected, which could help the stock after a merger. That comes as pricing momentum is also expected to continue for the company with rate renewals expected to grow beyond the 5% to 6% seen at prior peak cycles. Meanwhile, the company will not directly feel the same increase in labor costs as its U.S. counterparts. But Ossenbeck noted compensation headwinds already in place will remain. — CNBC’s Michael Bloom contributed to this report.
