On Wednesday, UBS revised its price target for Canadian National Railway (TSX:CNR:CN) (NYSE: CNR) shares, reducing it to Cdn$189.00 from Cdn$202.00, while maintaining a Buy rating on the stock. The adjustment follows the railway company's second-quarter earnings report, which fell short of analysts' expectations.
Canadian National Railway disclosed a second-quarter earnings per share (EPS) of C$1.84, which did not meet the anticipated C$1.92 by UBS and the consensus projection of C$1.93.
The earnings miss was attributed to a revenue shortfall of C$48 million below forecasts and operating costs that were C$42 million higher than expected. Consequently, the company's operating ratio (OR) deteriorated to 62.3%, a 160 basis point deviation from UBS's projections.
Despite a strong year-over-year (y/y) revenue ton-miles (RTM) growth of 7.3% in the second quarter, the revenue per RTM declined by 0.6% y/y. This was partly due to an increase in the average length of haul.
Additionally, Canadian National Railway has revised its full year EPS growth outlook, scaling it down from the originally projected 10% growth to a mid to high single-digit range.
The railway's performance was further impacted by various operational challenges. Congestion in the corridor to and from Vancouver, along with crew availability issues, led to increased cost pressures.
Furthermore, the company experienced a negative impact on EPS of C$0.10/share year-over-year, owing to rising fuel costs and diminished surcharge revenue in the second quarter.
In other recent news, Canadian National Resources has seen an upgrade in its stock rating from National Bank Financial, moving from Sector Perform to Outperform. This upgrade comes in light of a favorable outlook on the company's potential performance, with a "reasonably constructive volume environment" and an increasing confidence in this year's grain harvest being key contributing factors. These elements are expected to aid Canadian National Resources in achieving a projected 10% growth in earnings per share (EPS) for the current year.
National Bank Financial also noted the recent decline in the company's stock price as an opportunity, highlighting that the shares are now trading at a more appealing valuation. Specifically, the company's stock is currently valued at 20.2 times the current year's EPS, a figure below its historical forward average of 22.2 times.
Despite the upgrade, the firm's price target for Canadian National Resources remains steady at Cdn$190.00, indicating that while the outlook has improved, the long-term valuation of the company's stock aligns with previous assessments.
InvestingPro Insights
In light of UBS's revision of Canadian National Railway's price target, it's useful to consider the current financial health and market performance of the company as reflected in real-time data from InvestingPro. With a market capitalization of $62.66 million USD, the railway operator's valuation reflects investor sentiment and market conditions. The company's P/E ratio, standing at -20.99 and adjusted to -28.78 for the last twelve months as of Q4 2023, suggests that investors are waiting for Canadian National Railway to turn its negative earnings around. Additionally, the PEG ratio of -0.86 indicates that the market may have concerns about the company's future earnings growth potential relative to its current earnings trajectory.
InvestingPro Tips highlight that despite a challenging quarter, Canadian National Railway has shown a 13.1% price total return over the past six months as of the reporting date, signaling some investor confidence in its mid-term recovery potential. Moreover, with an InvestingPro fair value estimate of $0.33 USD, there appears to be a slight upside compared to the previous close price of $0.31 USD. For investors looking for more comprehensive analysis and additional tips, InvestingPro offers a range of insights—there are currently 5 more tips available that could provide a deeper understanding of Canadian National Railway's investment potential. To access these insights and save on a subscription, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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