CPKC

IThe 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 C (calculated).⁴³ The company’s own core adjusted earnings per share were C$4.90, against C$4.33 under US accounting C (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.

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

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.

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% C (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 C (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

IIThe 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.

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 C (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 C (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 C (calculated). That is what a market does when it believes in a franchise. It is not a record of pricing power by itself.

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 C (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 C (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

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.

IIIThe 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.

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% C (calculated).¹⁸⁷ Norfolk Southern was 64.2% and CSX 67.9% C (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.

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.

IVManagement

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 C (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% E (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

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 C (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.

VFinancials

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

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 C (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.

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 E (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 C (calculated).³⁷ I model cash taxes at 21.5%.

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 C (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.

VIValuation

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 E (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 E (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 E (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 E (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 E (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.

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 C (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 C (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.

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 C (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.

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 C (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.

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 R (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% E (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.

The margin of safety

• PriceUS$91.49Close, Q4 2026 [1]
• Base valueUS$66My estimate E (estimate)
• Margin of safety belowUS$50set from my bear case C (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 C (calculated).¹⁰

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 E (estimate).

These are estimates of value, not forecasts of the share price, and the market price can sit above or below value for years.

VIIThe 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 C (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 E (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.

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.

VIIIRisks, 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 C (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

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