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Bernstein SocGen downgrades Canadian National Railway stock on volume concerns

EditorEmilio Ghigini
Published 08/07/2024, 12:16
CNI
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On Monday, Bernstein SocGen Group revised its stance on Canadian National Railway (TSX:CNR) (NYSE:CNI), downgrading the stock from Outperform to Market Perform. Accompanying the rating change, the firm also adjusted the price target to $130.67, a decrease from the prior target of $146.25.

The revision comes amid concerns over Canadian National Railway's near-term prospects, including cost pressures and below-consensus volume expectations for the second quarter.

The analyst highlighted the potential for bookaway from Prince Rupert in the third quarter due to strike risk, which may necessitate a tempering of expectations for the 10% fiscal year 2024 earnings per share growth previously forecasted.

While the long-term growth narrative for Canadian National Railway remains favorable, and the stock's price-to-earnings ratio of approximately 19 times is considered reasonable, the firm has decided to adopt a cautious stance. This decision rests on the need for a clearer catalyst path that could justify a re-rating of the shares.

The analyst also noted a more conservative outlook on the company's recovery timeline, leading to a reduced near-term plus one-year target despite advancing the model forward. This adjustment reflects a slightly less confident view on Canadian National Railway's ability to rebound.

In other recent news, Canadian National Railway Co., known as CN, has experienced significant developments in its labor negotiations, earnings, and subsidiary contracts. CN's labor negotiations faced a setback when the Teamsters Canada Rail Conference rejected an offer to enter binding arbitration.

The dispute revolves around the modernization of the collective agreement, with CN advocating for changes that it claims would enhance productivity and work-life balance for its employees.

In the financial sphere, despite a 1% dip in revenues due to lower fuel surcharge and RTMs, CN's President and CEO Tracy Robinson reported a steady operational performance for the first quarter.

The company saw growth in petroleum, chemicals, frac sand, and metals segments, with declines in coal, grain, and forest products. Despite these challenges, CN reaffirmed its guidance for the year, projecting a 10% EPS growth in 2024.

In terms of subsidiary contracts, CN's subsidiary CNTL has successfully ratified a four-year contract with owner-operators represented by Unifor, ensuring service continuity for trucking container deliveries across Canada until December 31, 2027.

This development follows a previous tentative agreement that was rejected, marking a notable step in solidifying the working relationship between CNTL and the owner-operators. These are recent developments that have the potential to influence CN's operations and financial performance.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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