Canadian National Railway Company
(
CNI
) recently announced an investment plan involving C$12 million for
the expansion of Locomotive Reliability Centre in Prince George,
British Columbia.
In July, the company also laid down plans to build five extended
sidings on Northern Lines in British Columbia. These
investments are expected to ease the ever growing traffic in the
North corridor. The proposed infrastructural developments form a
part of the company's multi-year capital program, envisaged to
boost capacity addition, thus supporting more volumes across the
company's Edmonton-Prince Rupert freight corridor.
It is Canadian National's objective to maintain high railroading
(velocity, reliability, lowers costs and asset utilization)
standards. In addition, the company is continuously seeking
productivity initiatives to reduce costs and leverage its
assets.
For this purpose, the company targets to spend about C$1.8
billion this year, out of which over $1 billion will be directed
toward track and infrastructure improvement as well as productivity
initiatives. Approximately C$150 million has been allotted for
acquisition of new freight cars and upgrading of locomotives along
the Edmonton-Prince Rupert corridor while around C$500 million has
been earmarked for information technology and various new
projects.
We believe that these investment plans stem from the company's
confidence in future market conditions. Canadian National
expects strong demand across all its businesses with improvement in
wholesale and retail market supporting high business volumes for
the company. Pricing contributes substantially to revenue growth
which rises 3% to 5% year over year. Fuel surcharge also
moves along the same path with similar growth rate.
Despite the slowing economy and stiff competition from
Canadian Pacific Railway
(
CP
), we believe the improving operating efficiency along with
expansion growth in key markets will help the company achieve
strong financial results in the quarters ahead. This
has underpinned mid-single digit carload growth and approximately a
10% earnings growth in 2012. Management continues to expect a
sustainable operating ratio, given stronger volume growth at low
incremental cost with productivity initiatives such as improving
system velocity and fuel efficiency.
Currently, Canadian National Railway has a Zacks #3 Rank,
implying a short-term Hold rating on the stock. For the long-term,
we maintain our Neutral recommendation on the stock.
CDN NATL RY CO (CNI): Free Stock Analysis
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