CANADIAN PACIFIC KANSAS CITY LTD/CN (CP) stock intrinsic value fair value estimate & owner earnings analysis

Canadian Pacific Kansas City (CPKC) operates a railway network linking Canada, the United States and Mexico, formed when it took control of Kansas City Southern in April 2023. Figures are in Canadian dollars unless marked US$. Per-share values are converted at about US$0.73 per C$1, the year-end 2025 rate implied by the annual report (US$850 million of commercial paper equals C$1,165 million). What the business earns for its owners. We start from operating cash flow, remove swings in working capital, deduct the equity-settled part of stock compensation (the cash-settled part is already inside cash flow) and deduct only the maintenance share of capital spending, treating growth spending as discretionary. On that basis owner earnings were C$2.56 per share in 2024 and C$2.71 in 2025 (C$2,396 million and C$2,481 million). We did not count non-cash pension income (about C$367 million net of funding in 2025) or the C$333 million gain on an equity-investment sale in 2025. We rely on 2024 and 2025 only, because 2023 held Kansas City Southern for about eight and a half months and earlier years describe a smaller, different railway. Because CPKC carries a lot of debt, we value the business before its lenders and then subtract the debt. Adding back cash interest paid (C$814 million in 2024, C$863 million in 2025) gives business cash flow of C$3,210 million and C$3,344 million. The average, C$3,277 million, is the starting level in every case. Growth we credit. Business cash flow grew 4.2% in 2025, and the base case assumes 3% in year one, below that. The base case then holds 3% a year for ten years, 2% a year for the next ten, and flat thereafter. The evidence is a demonstrated record: railway revenue grew about 5.9% a year from 2016 to 2022 (C$6.2 billion to C$8.8 billion), and slipped only 1% in the 2020 downturn. We credit roughly half that pace. We give no credit for merger synergies, new Mexican volumes from the Celaya bypass now under construction (C$4.4 billion of capital commitments through 2033 including the concession), or margin gains, because none is contracted or a repeated result yet. First-half 2026 revenue of C$7,865 million versus C$7,494 million (up 5.0%) and operating cash flow of C$2,702 million versus C$2,511 million (up 7.6%) are consistent with this path but too short to move the starting level. Debt. At June 30, 2026 debt was C$25.1 billion (C$23.2 billion at year-end 2025) against C$0.4 billion of cash, while diluted shares fell to about 887 million. At year-end 2025 maturities were C$3.2 billion in 2026 (including the commercial paper), C$1.9 billion in 2028, C$1.0 billion in 2029, C$1.5 billion in 2030 and C$16.2 billion later. Interest due over the next 12 months of C$889 million on about C$23.3 billion of debt is roughly 3.8%, well under the 6% we use, so we lowered the debt figure by about C$3.8 billion for the value of those below-market rates. Net debt used is C$21.0 billion. Base case, US$45.3 per share: the business is worth C$76.0 billion, it owes C$21.0 billion, leaving C$55.0 billion, or C$62.03 per share. Bull case, US$60.0: cash flow grows 5% a year for ten years (just under the 2016 to 2022 pace), 3% for the next ten, then holds. The business is worth C$93.9 billion, it owes C$21.0 billion, leaving C$73.0 billion, or C$82.25 per share. Bear case, US$21.3: in 2016 operating cash flow fell 15% (C$2,459 million to C$2,089 million), and the annual report warns that tariffs or trade restrictions among Canada, the United States and Mexico could materially reduce volumes. We assume business cash flow falls 10% and then 5% (to about C$2.8 billion) and never grows. The business is worth C$46.8 billion, it owes C$21.0 billion, leaving C$25.9 billion, or C$29.15 per share. Even then cash flow covers annual interest of roughly C$0.9 billion about three times. Kansas City Southern de Mexico's exclusive right to provide freight service runs through 2037 subject to conditions, and its concession runs to June 2047 with renewal rights; the loss of exclusivity is a risk we did not separately quantify. Change since our August 2026 analysis (US$28.8 / US$58.3 / US$102.3). The earlier work did not deduct debt, assumed 6% to 8% growth not backed by contracts, and used higher discount rates than we now apply, which partly offset the first two. Correcting for debt of about C$21 billion and limiting growth to the demonstrated record lowers all three cases, even though the lower share count and firmer first-half 2026 results help. What would make this estimate wrong: pricing power fading (revenue falling in consecutive years), trade barriers cutting cross-border volumes, or C$7.6 billion of maturities through 2030 being refinanced well above 6%. The margin-of-safety price is around US$27, roughly 40% under the base case, because the business is leveraged and sensitive to trade policy.