On Wednesday, BMO Capital adjusted its outlook on shares of CN Railway (CNR:CN) (NYSE: CNI), reducing the price target to Cdn$182.00 from the previous Cdn$188.00. The firm maintained an Outperform rating on the stock despite the adjustment. The change follows CN Railway's second-quarter results, which did not meet the already lowered expectations, leading to a revised guidance.
The results highlighted issues, particularly in the western corridor, which is currently capacity constrained. This situation has raised concerns regarding CN Railway's ability to efficiently integrate a robust pipeline of unique growth opportunities while maintaining profitability. The revised forecast by BMO Capital reflects these concerns and the potential risks to the fiscal year 2024 outlook.
BMO Capital noted that ongoing labor uncertainty and related volume diversions are contributing factors to the risks facing CN Railway. These challenges are seen as temporary, but they underscore the need for caution in the near term. The firm's revised target price takes into account the impact of these factors on the company's financial projections.
The downgrade in the price target to Cdn$182.00 from Cdn$188.00 is a response to the Q2/24 performance and the subsequent lowering of the company's financial guidance. Despite these setbacks, BMO Capital continues to see the stock as a strong performer in the long run, hence the retention of the Outperform rating.
CN Railway's recent quarter results have prompted BMO Capital to adjust its expectations and target price for the company. Investors will be watching closely to see how the company navigates the highlighted challenges and capitalizes on its growth opportunities in the coming fiscal periods.
In other recent news, Canadian National Railway (TSX:CNR) (CN) has faced several adjustments in its stock targets by various financial firms following its second-quarter financial results. Stifel revised its price target for CN to $133, while BMO Capital reduced its target to $182, both firms maintaining their previous ratings. RBC Capital also adjusted its price target for CN shares due to the company's earnings shortfall.
CN's Q2 earnings came in at $1.84 per share, falling short of the consensus estimate of $1.93 per share. This, coupled with potential disruptions from a possible labor strike, led to the company revising its earnings per share growth forecast to mid- to high-single-digit, down from the previously projected 10%.
On the labor front, CN's negotiations with the Teamsters Canada Rail Conference faced a setback when the offer to enter binding arbitration was rejected. This dispute centers around the modernization of the collective agreement, which CN asserts would enhance productivity and work-life balance for its employees.
Despite a 1% dip in revenues due to lower fuel surcharge and RTMs, CN reported a steady operational performance for the first quarter, with growth in petroleum, chemicals, frac sand, and metals segments.
Moreover, CN's subsidiary, CNTL, 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 could influence CN's operations and financial performance.
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