Down 5% After Merger Announcement Can Canadian Pacific Railways Stock Rebound?

The stock price of Canadian Pacific Railway (NYSE: CP) has seen over a 5% drop over the last five trading days, after the company announced its plans to acquire Kansas City Southern in a deal valued at $29 billion. The acquisition offer was made at a premium of 23% to Kansas’ stock value as of March 19, 2021. Canadian Pacific will also assume $3.8 billion debt of Kansas, included in the $29 billion offer. Now, the reason for CP stock price correction is the higher debt levels the company will have post Kansas’ acquisition. However, there are several positives associated with this deal. Firstly, the company expects synergies of $780 million, and the merger to be EPS accretive from the first year itself. Secondly, both the companies have an existing interchange in Kansas city, implying lower integration costs. Lastly, Canadian Pacific will become the first railroad to connect Mexico, the U.S., and Canada, implying better market reach.

Looking at the recent decline, the 5% drop for CP stock over the last five days compares with a 1.2% drop seen in the broader S&P 500 index. Now, is CP stock poised to drop further? It doesn’t look that way. We believe that positives from this merger outweigh the concerns of higher debt levels for Canadian Pacific. Also, based on our machine learning analysis of trends in the stock price over the last few years, we believe that there is a strong 64% chance of a rise in CP stock over the next month (twenty-one trading days).

Out of 124 instances in the last 10 years that Canadian Pacific Railway (CP) stock saw a five-day decline of 5.5% or more, 79 of them resulted in CP stock rising over the subsequent one month period (twenty-one trading days). This historical pattern reflects 79 out of 124, or about 64% chance of a gain in CP stock over the coming month. See our analysis on Canadian Pacific Stock Chances of Rise for more details. Curious about the possibility of rising over the next quarter? Check out the CP Stock AI Dashboard: Chances of Rise And Fall for a variety of scenarios on how CP stock could move.

Five Days: CP -5.5%, vs. S&P500 -1.2%; Underperformed market

(5% likelihood event)

• Canadian Pacific Railway stock declined 5.5% over a five-day trading period ending 3/23/2021, compared to broader market (S&P500) decline of 1.2%
• A change of -5.5% or more over five trading days is a 5% likelihood event, which has occurred 124 times out of 2516 in the last ten years

Ten Days: CP -4.3%, vs. S&P500 1%; Underperformed market

(24% likelihood event)

• Canadian Pacific Railway stock declined 4.3% over the last ten trading days (two weeks), compared to broader market (S&P500) rise of 1.0%
• A change of -4.3% or more over ten trading days is a 24% likelihood event, which has occurred 609 times out of 2500 in the last ten years

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