Canadian Pacific – Time to let the stock go?

Let’s look at the math and determine whether to hold the stock.

First, let’s assume the stock is trading at EBV+4, which is $73.95, as at January 30, 2012.  This will be the price we will do our analysis.

Assume the vote goes in favor, of Ackman.  Let’s also assume Hunter Harrison is running CP.  Then let us further assume CP trades at the same valuation as CNR, again on January 30, 2012.  CP would be trading at $86.80 a share.  That would mean an increase of 17.4% gain.  (From $73.95 as stated.)

Go so far.

Second, let’s assume the proxy battle goes in favor of current management and the present board certainly the stock would probably land at support at EBV+3, at $59.13 again at January 30, 2012, a loss of 20%.  CP would probably go lower, as the speculators dump their shares, however EBV+3 would be reasonable price sometime after the vote.

So a 17% upside gain, if all goes perfectly according to my first assumption.  A 20% downside, if the vote is against Ackman.  (Probably in a hurry!)

As you can see the market is a wonderful probability machine.  The market is saying 50-50 (in general) at this point.  Obviously, these odds (and price) can change anytime.

So back to the question, ‘Time to let the stock go?”  The current market is suggesting a coin toss.  Hopefully your odds are better elsewhere.

See our previous post on Canadian Pacific.

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