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On Monday, Loop Capital Markets adjusted its position on Canadian Pacific Kansas City Ltd (NYSE:CP:CN) (NYSE: CP), downgrading the stock from "Buy" to "Sell" and significantly reducing the price target from Cdn$125.00 to Cdn$70.00. The revision follows recent tariff news that highlights the railroad’s unique exposure to North American trade tensions.
The downgrade was prompted by Canadian Pacific Kansas City’s distinctive operational footprint, as it is the only railroad that traverses both the United States and Canadian borders. This places CPKC in a vulnerable position amid escalating trade disputes between the two countries. According to Loop Capital, the company’s exposure to potential trade disruptions is a primary concern, as it could lead to a contraction in the stock’s valuation multiples.
The analyst from Loop Capital pointed out that CPKC’s stock was trading at an industry high of 25 times consensus next twelve months (NTM) price-to-earnings (P/E) as of the previous Friday. The firm believes that the stock is at risk of multiple compression, which occurs when a stock’s valuation multiple contracts due to changes in market conditions or company fundamentals.
The decision to reevaluate CPKC’s stock followed a news report on Saturday that brought to light the potential for a North American trade war. The analyst’s commentary reflected the immediacy of the situation, with CPKC’s operations being directly in the spotlight due to their cross-border nature.
Loop Capital’s revised price target of Cdn$70.00 represents a substantial decrease from the previous target of Cdn$125.00. This new target suggests a bearish outlook on the stock’s future performance, taking into account the heightened risks associated with the current trade environment.
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