Our $88 target price is based on a 23x target multiple on our 2026 EPS estimate, at the upper end of its long-term forward P/E range of 16.5x to 23x forward earnings. We believe a target multiple above CP’s long-term trading range is appropriate given its strong management team, growth opportunities, and synergies from its 2023 merger with KCS.

Downside risks to our target price include poor execution on promised synergies, regulatory scrutiny, country risk, and competitive risk. Additionally, other rails are responding to the CP-KCS combination with partnerships. UP, CN and Ferromex have launched Falcon/Eagle Premium to compete head-on with CP’s 180/181 Mexico Intermodal service. A key risk stems from CP’s hitting a market share gain wall put up by these partnerships. For example, Falcon/Eagle Premium may occupy market share for a certain price point, region or end market.