CNR Reported Q1 Earnings Decline

Canadian National Railway CNR has reported revenue of C$4.2 billion, a decline of 1%, and EPS of C$1.72 per share, a decline of 5%. Running a 5 year DCF calculation using the latest TTM (trailing 12 months) net income gives an estimated value of C$166 per share, and a CAGR of 9.44%. Here are the assumptions:

• Latest TTM net income of C$5.51 billion
• Net income growth of 5% annually (5YR average is 5.38%)
• share repurchase of 2.4% of shares per year (Same as the 5YR average)
• PE ratio of 20 after 5 years (5YR average is 21.73)
• Discount rate of 10%

The decline is likely due to the traffic volume being flat YoY while the cost of running the railroads continues to rise. There are also more competitions coming from truck freight services. The management is expecting the traffic volume to rise later in the year and maintains the expected 10% EPS growth in 2024. They have also announced a 7% dividend increase in 2024 and authorized a 32 million share buyback program (about 5% of outstanding shares).

Considering the predictability of the business, great historical performance and the cost advantage of railroads compared to other transportation competitors, I consider $CNR low risk and feel comfortable continuing to hold the company for the long term even at a slightly expensive valuation.

Click here original post and comments on Blossom

DISCLAIMER: Solofire is not a registered financial advisor. This post contains author's personal opinion only and it should NOT be considered financial advice.