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Canadian Pacific Kansas City Ltd. (CP) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Canadian Pacific Kansas City Ltd. (CP)

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Intrinsic Value (DCF)

Current$72.39
→
Intrinsic$38.84
-46%
$18.20$38.84$79.91
Market implies 24% growth for 5 years
Current price reflects execution expectations above 13% growth — not unreasonable for quality businesses.
At $72, the market prices in continued strong cash flow growth (24%) — likely reflecting buybacks, margin stability, and ecosystem strength.
Range: Bear $18 → Bull $80. Current price implies expectations above the base case, closer to bull expectations.
Discount ↓Growth →9%11%13%15%
8%$54$61$68$76
10%$29$34$39$44
12%$17$20$23$27
14%$9$11$14$17

Bull Case

  • Bull case ($80) offers 10% upside at 16% growth, 8% discount
  • Conservative 13% growth assumption is achievable based on track record

Bear Case

  • Bear case ($18) implies 75% downside at 11% growth, 12% discount
  • Price reflects 24% growth expectations vs 13% historical — high bar to clear
  • Trading 46% above base case — execution must exceed assumptions to justify
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5-Year Free Cash Flow Projection

Year 1$2.73B
Year 2$3.09B
Year 3$3.50B
Year 4$3.96B
Year 5$4.49B
Terminal$71.17B

📐 Model Inputs

Growth Rate13.3%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate9.5%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$2.41BTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is CP stock undervalued or overvalued?
🔴 OVERVALUED

CP trades at $72.39 vs. our DCF-derived intrinsic value of $38.84, implying -47% downside. Using a 9.5% WACC and 13.3% FCF growth assumption, the current price requires growth rates above our estimates to be justified. Even our bull case ($67.87) suggests limited upside.

What is CP's intrinsic value?

Using a 5-year DCF model: Base FCF of $2.41B, projected at 13.3% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 9.5% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $22.25B net debt and dividing by 0.93B shares: Bear $18.78 | Base $38.84 | Bull $67.87. Current price $72.39 implies -47% to base case.

How is CP's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 13.3% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=9.5%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($58.55B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 24.3x.