Updated Research Report on Canadian National Railway - Analyst Blog

On May 14, 2014, we issued an updated research report on Canadian National Railway Company CNI. Despite a difficult winter, the company surpassed the Zacks Consensus Estimate on both the lines. Strong demand across most of its businesses coupled with enhanced consumer confidence in the U.S. and domestic retail markets bode well for the company. In the near term, we expect growth in shipment related to automotive, housing and grains to drive revenues.

Canadian National has delivered positive earnings surprises in three of the last four quarters, with an average beat of 2.8%.

Canadian National expects healthy economic improvement in North America to support around 3% industrial production growth in 2014. In 2014, the company expects volumes to be driven by improved housing starts, automotive sale, grain crop in Canada and in the U.S., petrochemical, metals and energy consumables like frac sand and crude-by-rail. In terms of agricultural volumes, the company forecasts robust grain export from both Canada and the U.S., which will likely bolster agricultural shipments.

Automotives will continue to grow on higher North American auto production and estimated U.S. light vehicles sale of 16 million units in 2014. In terms of fertilizers, management expects the 10-year contract with Canpotex Ltd. for transporting potash to remain accretive to carloads. Profits are also expected from higher metallurgical coal exports and a 7-year contract with Coalspur inked in Feb 2013.

On the flip side, Canadian National faces significant competition from rail carriers and other modes of transportation. It faces rivalry specifically from Canadian Pacific Railway, which operates the other major rail systems in Canada and caters to almost similar areas where Canadian National serves. It also faces intense competition from trucking companies in eastern Canada.

Canadian National currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Other better-ranked stocks worth considering in this sector include Kansas City Southern KSU, Union Pacific Corporation UNP and Westinghouse Air Brake Technologies Corporation WAB. All these stocks sport a Zacks Rank #2 (Buy).