Canadian Pacific Kansas City (CP) investment Quality Rating (AA)

(AA) | Industrial | Rail Transportation / Logistics
By: Old York Financial
A Private Principal Research Report

the verdict

Old York Financial has assigned Canadian Pacific Kansas City (CP) an Operational Quality (AA) Rating. CPKC is a unique logistical monopoly, operating the only single-line rail network connecting Canada, the U.S., and Mexico. In 2025, the firm realized massive synergies from the KCS merger, driving revenue to C$15.1 Billion. While CPKC possesses a superior growth runway compared to CNR due to the "nearshoring" trend in Mexico, it remains a (AA) entity because of the integration-related debt load and the inherent capital intensity of a 20,000-mile physical network.

the old york analysis

owner earnings: the merger-adjusted surplus

CPKC's financials are currently "noisy" due to merger-related amortization, so we look to the core cash-generative power.

• 2025 Reported Net Income: C$4.14 Billion

• (+) Depreciation & Amortization: ~C$2.02 Billion

• (–) Maintenance CapEx (est.): (~C$1.85 Billion)

• = OLD YORK OWNER EARNINGS: C$4.31 Billion

• Analyst Note: CPKC is in a "Deleveraging Phase." Despite spending C$3.1 Billion on CapEx in 2025 to integrate the networks, the firm is projecting a **15% reduction in CapEx** for 2026 (to ~C$2.65B). This shift will significantly expand the free cash flow available to the Principal for debt retirement and share repurchases.

growth & market dominance

• Total Revenues (2025): C$15.1 Billion (Up 4%).

• Core Adjusted Operating Ratio: 59.9% (A record-low for the combined entity).

• Core Adjusted Diluted EPS: C$4.61 (Up 8%).

• Analyst Note: The "Mexico-to-Canada" corridor is the crown jewel. CPKC is winning "truck-to-rail" conversions at an accelerating rate. Its sub-60% adjusted OR proves that Keith Creel is successfully applying the Precision Scheduled Railroading (PSR) model to the previously less efficient Mexican lines.

operational efficiency

• 5-Year ROIC (Avg): 6.01%

• 5-Year EPS CAGR: 0.15%

• 5-Year Price CAGR: 2.36%

• Share Change (5Y): 34.57%

• Analyst Note: ROIC is currently suppressed by the C$31 Billion acquisition price of KCS. However, the *incremental* ROIC on new cross-border traffic is significantly higher. As synergies hit the C$1.2 Billion annual target by 2027, we expect ROIC to trend toward 14%.

the fortress check

• Pricing Power: SOVEREIGN (Cross-Border). CPKC is the only rail that can move a car from a factory in San Luis Potosí, Mexico, to a dealer in Toronto without swapping carriers. This "single-line" advantage is a massive moat that allows for premium pricing over fragmented competitors.

• The "Nearshoring" Moat: As manufacturing shifts from Asia to Mexico, CPKC sits on the only "steel highway" connecting the new industrial heartland to the North American consumer. This is a 100-year structural advantage.

• Solvency: IMPROVING. Net Debt-to-EBITDA has dropped to 2.8x (down from 3.5x at the time of merger). While higher than CNR's 2.5x, CPKC is on a fast-track to "Fortress" status as it pays down merger debt.

final determination

Rating: Old York Quality (AA)
Classification: The North American Continental Monopoly. CPKC is the "Growth Rail" of the Registry. It receives a (AA) because of its higher leverage and the remaining integration work required to reach (AAA) efficiency levels. However, from a principal’s perspective, it offers a more compelling long-term "Alpha" than CNR due to its unique grip on the USMCA trade corridor.

Disclaimer: Old York Financial operates privately as a principal and sells corporate advisory. Old York Financial is not an accountant, a financial advisor, a broker, an agent, a lawyer, or a portfolio manager. This report is for informational purposes only.