CANADIAN PACIFIC RAILWAY LTD. $190 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 161.3 million; Market cap: $30.6 billion; Price-to-sales ratio: 4.5; Dividend yield: 0.7%; TSINetwork Rating: Above Average; www.cpr.ca) transports freight over a 22,000-kilometre rail network between Montreal and Vancouver, as well as hubs in the U.S. Midwest and Northeast.

In 2014, Canadian grain accounted for 15% of CP’s freight volumes, followed by domestic intermodal (containers that travel by rail, ship and truck), 12%; metals and minerals, 11%; coal, 10%; chemicals, 10%; international intermodal, 9%; U.S. grain, 8%; crude oil, 7%; automotive products, 6%; potash, 5%; fertilizers, 4%; and forest products, 3%.

The company continues to benefit from an aggressive restructuring that has cut its operating costs, reduced the amount of time its trains spend at terminals and sped up deliveries. Better service helped increase its revenue by 32.9%, from $5.0 billion in 2010 to $6.6 billion in 2014.

Earnings fell 18.2%, from $3.85 a share (or a total of $651 million) in 2010 to $3.15 a share (or $538 million) in 2011. That’s because flooding in Western Canada hampered CP’s operations. But thanks to its improving efficiency, earnings rebounded to $4.34 a share (or $753 million) in 2012 and rose to $8.50 a share (or $1.5 billion) in 2014.

In the three months ended June 30, 2015, the railway earned $404 million, up 8.9% from $371 million a year earlier. Per-share profits jumped 16.1%, to $2.45 from $2.11, on fewer shares outstanding. These gains are entirely due to lower costs, as the slowing economy cut CP’s revenue by 1.8%, to $1.65 billion from $1.68 billion.

CP’s second-quarter operating ratio improved to 60.9% from 65.1% a year ago. (Operating ratio is calculated by dividing regular operating costs by revenue. The lower the ratio, the better.)

For all of 2015, CP expects its operating ratio to fall to 62.0% from 64.7% in 2014. That’s largely because of low oil prices; fuel is the company’s second-largest expense (24% of its 2014 operating costs) after employee salaries (32%).

Benefiting from pipeline opposition

The drop in crude prices has also prompted many Western Canadian oil producers to cut their output. As a result, CP’s second-quarter crude volumes fell 24.0% from a year earlier.

The company’s oil shipments will likely rebound in the next few years, particularly as new pipeline projects, like TransCanada’s Energy East, face strong political opposition. Moreover, by 2017, new oil sands projects could increase Alberta’s daily output by 25%.

In response to the July 2013 train crash and explosion in Lac-Mégantic, Quebec, regulators in Canada and the U.S. have ordered railways to phase out older tanker cars and carry more insurance to cover the costs of future incidents. To comply with these rules, CP plans to spend $1.5 billion to upgrade and maintain its operations in 2015, up from $1.4 billion in 2014.

CP is also finding new ways to unlock value. For example, it recently formed a 50/50 joint venture with privately held outdoor-advertising firm All Vision. This company’s expertise will help CP maximize revenue from the over 700 billboards it owns next to its track in Canada and the U.S. In addition, the company is making better use of its overlooked real estate holdings. Under a new joint venture with DREAM Unlimited Corp. (Toronto symbol DRM)—called DREAM Van Horne Properties—the partners will redevelop CP’s surplus land near its rail lines in Toronto, Montreal, Edmonton and Chicago.

More buybacks ahead

CP’s balance sheet remains strong. As of June 30, 2015, its long-term debt was $6.6 billion, or a moderate 22% of its market cap. It also held cash of $185 million.

The company prefers to buy back shares instead of raising its $1.40-a-share dividend, which yields 0.7%. That’s because many of its investors live in the U.S. and are subject to withholding taxes on dividends from Canadian firms.

CP could repurchase up to 9.1 million shares under its latest authorization, and it’s now closing in on that limit, so it has raised it to 11.9 million shares, or 7% of the total outstanding. It should complete these purchases by March 17, 2016.

Low dollar fuels earnings

Due to the slowing economy, CP cut its 2015 earnings forecast to between $10.00 and $10.40 a share from $10.63. The stock trades at a reasonable 18.6 times the midpoint of the new range.

However, the U.S. accounts for 40% of its revenue, so CP stands to gain from the low Canadian dollar. That’s partly why it still expects its revenue to rise to $10 billion in 2018, while its earnings jump to $17.00 a share.

CP Rail is a buy.