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CN Rail Reported Underwhelming Earnings
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- Name
- Solo FIRE
Canadian National Railway CNR reported Q2 revenues of C$4.3 billion and EPS of C$1.84, an increase of 7% and 5%. The EPS growth is slower than expected. Here are some main issues the company is facing:
- Car velocity (car miles per day) is down. There are unproductive work done for the Vancouver - Edmonton corridor to handle record volume
- Ongoing labor union strike negotiations that is causing international intermodal customers to start reroute vessels away from Canadian ports until the labor questions have been resolved.
For the first part, the management mentioned in the earnings call that the velocity has returned to normal as of July and they are taking more action to prevent this from happening again.
Next, the negotiation with the union is still ongoing and I expect this to continue impacting the company next quarter. There seem to be a hard road ahead for CNR, however this doesn’t change it being a critical part of the Canadian economy. The management has increased share buybacks and dividends again this quarter, and reaffirmed the guidance on EPS growth in the range of 10%-15% over the 2024-2026. If they can achieve this, the expected return for the stock won’t be too bad. Given the track record of the company, I personally believe they can sort this out and deliver on their promises. I will continue to hold and buy more if the stock price continues to decrease.
The DCF calculated fair value estimation is C$164.34, here are the assumptions:
- TTM FCF $3.56 Billion
- FCF growth rate of 9% (5YR AVG 9.64%)
- Share repurchase of 2.48% per year (5YR AVG 2.48%)
- Future Price/FCF ratio of 25 (5YR AVG 31)
- Discount rate of 10%
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DISCLAIMER: Solofire is not a registered financial advisor. This post contains author's personal opinion only and it should NOT be considered financial advice.