Canadian National Buys Locomotives - Analyst Blog

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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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CAT , CNI , CP , GE

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