On Wednesday, Stifel maintained a Hold rating on shares of Canadian National Railway (TSX:CNR) (NYSE:CNI), while increasing the price target to $137 from $134. The revision comes in anticipation of the company's second-quarter performance, which is expected to showcase a nearly 4% rise in carloads and approximately a 7% increase in revenue ton-miles (RTMs) due to stronger grain and P&C shipments.
Canadian National's intermodal business has seen a rebound, driven by heightened volumes at the Port of Vancouver and Prince Rupert, although Halifax is experiencing a slower recovery due to ongoing issues in the Red Sea.
The analyst noted that the railway is well-positioned to handle more intermodal and bulk traffic following capacity expansions at Prince Rupert. Moreover, the lumber segment, previously a weak point for volumes, has shown signs of stabilization with an uptick in orders.
Despite the decline in coal volumes affecting many railroads, Canadian National's limited exposure to U.S. thermal coal, with a focus on Canadian metallurgical coal, has not seen the same downturn. The company is projected to experience earnings per share (EPS) growth of around 9% in 2024, with further expansions of about 11% and 9% in 2025 and 2026, respectively.
For the second quarter, the analyst's EPS estimate stands at $1.47 USD / $1.99 CAD, slightly above the Factset consensus of $1.42. Revenue is projected at $3.3 billion USD, an 11% year-over-year increase. Still, this is expected to be offset by a 12% rise in operating expenses, resulting in a second-quarter operating ratio that is 69 basis points higher than the previous year at 61.3%, yet showing a sequential improvement of 236 basis points.
The recent pullback in Canadian National's shares is attributed to ongoing negotiations with the TCRC. The stock is currently trading at 21 times the firm's 2024 EPS estimate of $5.90 USD. Despite the price target increase, the firm's valuation of the stock remains high, leading to the continuation of a Hold rating at the new $137 price target, which is based on the stock trading at 21 times the firm's 2025 EPS projection of $6.53.
In other recent news, Canadian National Railway (CN) has experienced significant developments. Bernstein SocGen Group downgraded CN's stock from Outperform to Market Perform due to concerns over near-term prospects, including cost pressures and below-consensus volume expectations for the second quarter.
Despite a 1% dip in revenues, CN's President and CEO Tracy Robinson reported a steady operational performance for the first quarter and projected a 10% earnings per share (EPS) growth in 2024.
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 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. These are recent developments that have the potential to influence CN's operations and financial performance.
InvestingPro Insights
As Canadian National Railway (NYSE:CNI) gears up for its second-quarter performance, the company has been demonstrating a strong commitment to shareholder value and stability. According to InvestingPro Tips, management's aggressive share buybacks and a history of raising dividends—now for 29 consecutive years—underscore a confident outlook. Moreover, the company's impressive gross profit margins, which stood at 55.78% in the last twelve months as of Q1 2024, signal efficient operations amidst industry challenges.
InvestingPro Data further highlights a substantial market capitalization of 78.14 billion USD and a P/E ratio of 19.97, suggesting a solid investor belief in the company's value. Additionally, the stock's low price volatility may appeal to investors seeking stable equity performance. For those interested in deeper analysis, InvestingPro offers 13 additional tips for Canadian National Railway, which can be accessed with a special discount using the coupon code PRONEWS24 for up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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