What The Street Is Watching At Canadian National Before Earnings

Canadian National Railway (USA) CNI is scheduled to report its first quarter earnings on Monday, after market close. Wall Street research firm Susquehanna recently previewed the results and rated the stock a Neutral, and issued a $68 price target (down from $70), stating that “Winter's Over, but Rails Not Quite Thawed.”

Rail volumes and shares came short of the analysts’ constructive expectations during the first quarter, and they expect volumes to remain challenged into the second quarter against a “tough ‘winter catch-up’ PY comps and incremental coal-to-gas switching.” The firm is now slightly below or at consensus EPS for most rails in the first quarter, the full year, and the year to come, but sees its revised outlooks as “achievable and share prices as stable against a backdrop sentiment that feels weaker than sell-side estimates imply.”

For the first quarter of 2015, Susquehanna expects EPS of 0.83 Canadian dollars (up 2 Canadian cents), or $0.67 (down $0.01 on FX), on revenue of 2.947 billion Canadian dollars. For the full year, the analysts project EPS of C$4.25 ($3.40) on revenue of C$12.979 billion. Finally, for fiscal 2016, they model EPS of sC$4.25 ($3.75) on revenue of C$13.784 billion.

The report highlights a few points to keep in mind:

• The first quarter was disappointing: “While we'll still get the pricing and fuel tailwinds, demand and share performance have simply been weaker than expected, with four of the seven rails we cover lowering expectations in some capacity during the quarter, every Class I rail but CNI coming in below our volume growth estimates set in January (average shortfall fully 5.5%, while CNI outpaced by 1.5%), and the Class I rails underperforming a flat S&P by 8%.”
• The second quarter will also be challenging, as expected
• The analysts “still Remain Constructive on Rail Pricing, and Fuel Surcharge Declines Continue to Provide a Window for Aggressive Core Rate Increases.”