On Aug 14, 2014, we issued an updated research report on
Canadian National Railway Company
). The company reported strong second-quarter 2014 results that
surpassed the Zacks Consensus Estimate on both lines. Strong demand
across most of its businesses with improvements in the U.S. economy
and domestic retail markets bode well for the company. However,
lower coal shipments, particularly for export, continue to be a
headwind for Canadian National. The Montreal-based company
currently carries a Zacks Rank #3 (Hold).
The company foresees strong demand across most of its businesses
with improvements in consumer confidence in the U.S. and domestic
retail markets, underpinning mid-to-high single-digit growth in
business volumes in 2014.
In terms of agricultural volumes, Canadian National forecasts
robust grain export from both Canada and the U.S., as the company
continues moving the record harvest achieved last year. Increased
vehicle production in North America will boost the automotive
division while thermal coal volume will remain strong due to the
ongoing restocking and market share gains.
The company's chemical business will benefit from shale-related
activity and continuous growth in crude-by-rail business while
higher revenues are expected from potash and the upcoming markets
for frac sand in 2014 and 2015.
Post a difficult winter, the company has finally managed to
synchronize its overall supply chain. It has also opened 2 new
training centers in Winnipeg and suburban Chicago apart from
enhancing its on-job training to improve employees' skill levels.
We expect the operating ratio to remain at the current level of
around 60% on enhanced productivity from improving system velocity
and fuel efficiency.
However, offshore coal export is expected to remain challenged
going forward. Although fuel price has currently eased from the
recent highs, its impulsive nature continues to be a significant
challenge for the company. As a result, despite performing
efficiently on the fuel expense front in the second quarter, the
carrier expects tough times in the second half of the year.
Further, Canadian National faces significant competition from rail
carriers and other modes of transportation.
Stocks that Warrant a Look
Other stocks that warrant a look in this sector include Trinity
Industries Inc. (
), GATX Corp. (
) and Canadian Pacific Railway Limited (
). Trinity Industries sports a Zacks Rank #1 (Strong Buy), while
GATX Corp. and Canadian Pacific Railway carry a Zacks Rank #2
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