We have reaffirmed our Neutral recommendation on
Canadian National Railway
), reflecting its favorable position to reap benefits from
improving demand and pricing trends along with planned investment
programs and productivity enhancement measures. However, the
current market volatility and competitive pressure are expected
to weigh on the stock.
Why the Reiteration?
Montreal, Canada based Canadian National Railway is expected to
witness growth across all its business segments in 2013.
Merchandize will remain one of the prime revenue contributors,
with gains in metals and automotive shipments. Automotives will
continue to grow on higher North American auto production, which
will boost steel production, consequently driving shipments in
the Metals and Minerals category.
The company believes that improving operating efficiency along
with growth in key markets will lead to mid single-digit carload
growth in the coming quarters. The company also targets to
maintain a modest operating ratio, given stronger volume growth
at low incremental costs with productivity initiatives such as
improving system velocity and fuel efficiency.
However, we were a bit disappointed with the company's third
quarter results. Earnings per share were in line with our
expectation, but revenue failed to match the Zacks Consensus
In the coming days, several headwinds such as competitive threats
and uncertainties in the market condition of some of the product
lines and downturn in the economy will likely limit the upside
potential of the stock.
We see no earnings momentum for the stock over the last 30 days.
The Zacks Consensus Estimates for the fourth quarter is currently
pegged at $1.40 per share, reflecting a year-over-year increase
Other Stock to Consider
Canadian Pacific Railway
) is expected to perform impressively over the next few months
based on volume additions, attractive tie-ups and healthy
financial profile. It carries a Zacks #3 Rank (Hold rating).
CDN NATL RY CO (CNI): Free Stock Analysis
CDN PAC RLWY (CP): Free Stock Analysis Report
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