Canadian National Railway Scales New High - Analyst Blog

Shares of leading Canadian freight railroad company, Canadian National Railway Company CNI, touched a new 52-week high of $61.06 yesterday, before ending the trading session a trifle lower at $60.82.

Canadian National Railway, which has a market cap of more than $50 billion, has witnessed its shares shoot up nearly 19% in the past one year.

The increase in share price was primarily driven by robust quarterly numbers which in turn, are supported by strong demand across most of its businesses on the back of improved consumer confidence in the U.S. and domestic retail markets.

The company aims to maintain high railroading (velocity, reliability, lowers costs and asset utilization) standards. In addition, Canadian National is continuously pursuing productivity initiatives to grow steadily, reduce costs and leverage its assets to improve shareholders' return. The company has equipped its locomotives with advanced technologies like Trip Optimizer and Wi-Tronix to increase fuel efficiency.

Moreover, Canadian National Railway has surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average earnings surprise of 2.8%.

In the last concluded quarter, the company reported adjusted earnings per share of 60 cents, beating the Zacks Consensus Estimate of 57 cents. The bottom line also increased 8% year over year on higher freight rates and volumes. Quarterly revenues increased 9% year over year to $2,443 million and surpassed the Zacks Consensus Estimate of $2,511 million. The year-over-year growth was attributable to favorable currency fluctuations, higher freight pricing, volumes and fuel surcharge. The company's shares have jumped more than 5% after it announced its previous quarter numbers.

In the near term, we expect growth in shipment related to automotive, housing and grains to drive revenues. Strong crude-by-rail, expected market gains from frac sand and investments in infrastructure should boost Canadian National Railway's long-term prospects.

Despite the strong price appreciation, this Zacks Rank #3 (Hold) stock has plenty of upside left, given the positive estimate revisions witnessed over the past 60 days. In the last 60 days, the company has witnessed upward revisions with the Zacks Consensus Estimate for earnings moving up by 1.3% to $3.23. Notably, the current year earnings growth rate for the stock is 17.90%, which is higher than the industry growth rate of 16.80%.

Other Stocks to Consider

Some better-ranked stocks within the sector include GATX Corp. GMT, Kansas City Southern KSU and Union Pacific Corporation UNP. GATX sports a Zacks Rank #1 (Strong Buy), whereas Kansas City Southern and Union Pacific hold a Zacks Rank #2 (Buy).

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