No Hard Feelings: UBS Sees Pershing Square Exit From Canadian Pacific As Constructive For The Stock

Canadian Pacific Railway Limited (USA) (NYSE: CP) announced on Wednesday that its largest shareholder, Bill Ackman's Pershing Square, sold its entire 9.8 million stake in the company after buying a stake in 2011 and running a proxy fight in 2012.

Ackman will, however, remain on Canadian Pacific's Board of Directors through its next annual meeting in April or May of next year. Ackman has brought about change in the company as the firm's margin performance improved around 2,000 basis points since 2011 while the Board added seven new members and appointed Hunter Harrison as CEO.

According to Thomas Wadewitz of UBS, Pershing Square's exit from Canadian Pacific is actually "constructive" for the stock. Moreover, the anticipation of a sale by Pershing Square was a "point of concern" for some investors - and this is now removed.

Meanwhile, Canadian Pacific's business stands to improve through a combination of improving grain, met coal and potash volumes and significant cost reductions that the company put in place in the first half of 2016. As such, the analyst sees "significantly stronger" earnings per share performance in the bottom half of 2016 which "supports upside for the stock."

Wadewitz rates Canadian Pacific's Toronto-listed stock buy rated with a C$225 price target. The stock was trading at C$186.24 mid-Thursday afternoon.