After announcing plans for initiating new intermodal services
connecting British Columbia and Alberta,
Canadian National Railway
(
CNI
) is about to carry out another infrastructural development. The
company is purchasing approximately 65 new and 96 second-hand
locomotives to enhance the service abilities on its network and
support the growing demand for rail freight.
Through the year, Canadian National will take deliveries of
approximately 87 second-hand and 11 leased locomotives from GE
Transportation, a subsidiary of
General Electric
(
GE
). Further, in 2013 and 2014, the company is slated to take
deliveries of approximately 35 locomotives from GE Transportation
and 30 new SD70ACe locomotives from Electro-Motive Diesel, a
subsidiary of
Caterpillar Inc.
(
CAT
).
The purchase of new locomotives will ensure higher fuel
efficiency for the company as they replace older fleet that not
only consume more fuel but are also subjected to higher maintenance
cost.
Canadian National aims to maintain high railroading standards
(safety, velocity, reliability and asset utilization). The company
is focusing on train productivity by expediting the purchase of
locomotives, which are equipped with distributed power capability,
thus allowing the company to run longer-haul trains
efficiently.
In order to support these development projects, the company
plans to invest C$1.75 billion in track and infrastructure
improvement, as well as productivity initiatives this year.
Approximately $1 billion will be directed toward track and
infrastructure improvement as well as productivity initiatives,
C$150 million toward the acquisition of new freight cars and
upgrade of locomotive and around C$500 million will be allocated
for information technology and various new projects.
However, headwinds related to fuel cost, lower-utility coal
shipments and competition from peers like
Canadian Pacific Railway Ltd.
(
CP
) remain near-term concerns.
We maintain our long-term Neutral recommendation on Canadian
National. However, the stock holds a short-term (1-3 months) Hold
rating, as represented by the Zacks Rank of #3.
CATERPILLAR INC (
CAT
): Free Stock Analysis Report
CDN NATL RY CO (
CNI
): Free Stock Analysis Report
CDN PAC RLWY (
CP
): Free Stock Analysis Report
GENL ELECTRIC (
GE
): Free Stock Analysis Report
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