Hailey
Canadian Pacific Kansas City (CPKC), a major North American railroad operator, recently received a positive outlook upgrade from S&P Global Ratings. The rating agency shifted CPKC’s outlook from stable to positive, affirming its ‘BBB+’ rating.
This move comes after CPKC’s successful acquisition of Kansas City Southern (KCS) in 2023, which has boosted the company’s financial health. Let’s take a closer look at what this upgrade means and how the company’s network expansion is contributing to its success.
Why S&P Upgraded CPKC’s Outlook
Canadian Pacific Kansas City: S&P Global Ratings made the decision to revise Canadian Pacific Kansas City outlook to positive, primarily because of the company’s improved credit profile.
The acquisition of KCS has played a pivotal role in strengthening CPKC’s position in the North American rail industry.
The expanded network, which now connects Canada, the U.S., and Mexico, offers multiple benefits, such as better service on crucial trade routes and simpler operations.
The Benefits of Canadian Pacific Kansas City Expanded Network
Canadian Pacific Kansas City acquisition of KCS has created the only single-line rail network linking three countries. This development has resulted in reduced complexity in rail interchange and has improved service offerings.
One of the notable new services is the Mexico Midwest Express, launched in May 2023. This rail service connects the U.S. Midwest to Mexico and is highly competitive, offering cost-effective transportation options for companies like Americold and Schneider National.
Strong Revenue Growth and Financial Performance
S&P has high expectations for Canadian Pacific Kansas City future revenue growth. The company’s expanded network, especially in the intermodal and automotive sectors, is expected to continue driving growth.
In 2025, CPKC saw a 5% increase in revenue ton miles, with notable growth in the grain, potash, automotive, and intermodal sectors. This growth helped offset flat or declining volumes in some industries affected by tariffs or industrial slowdowns.
Financial Strength and Future Projections
CPKC’s financial performance is also strong. According to S&P, CPKC’s adjusted funds from operations (FFO) to debt ratio is expected to remain between 23%-25% over the next few years.
The company’s adjusted debt to EBITDA ratio is projected to be around 2.8x-3.0x, with the company’s net leverage nearing its target of 2.75x.
The company’s free operating cash flow is expected to range from C$3.0 billion to C$3.5 billion annually. This financial flexibility is crucial in case of any unexpected downturns in earnings.
Share Repurchases and Dividend Growth
CPKC plans to continue returning value to its shareholders. The company is expected to spend at least C$2.5 billion annually on share repurchases and is also increasing its dividends by approximately 10%.
This reflects the company’s strong financial health and commitment to rewarding investors.
Potential Impact of Union Pacific’s Acquisition of Norfolk Southern
A possible acquisition of Norfolk Southern by Union Pacific could significantly affect competition in the U.S. rail industry. However, S&P believes that CPKC’s unique North-South orientation and its tri-national rail network make it better positioned than most other major North American rail operators.
What’s Next for CPKC?
Looking ahead, S&P could further upgrade CPKC’s rating if the company continues to demonstrate strong earnings growth and maintains its financial strength.
If CPKC achieves adjusted FFO to debt above 23% and adjusted free operating cash flow to debt above 10%, an upgrade could be possible within the next 12 months.
The positive outlook revision from S&P highlights the growth potential and financial resilience of Canadian Pacific Kansas City. With its expanded rail network connecting three countries and strong performance across various sectors, CPKC is well-positioned for continued success.
As the company focuses on increasing revenue, share repurchases, and dividend payouts, it remains a solid choice for investors seeking a stable and growing company in the rail industry.