Canadian National Railway

CN Rail Q3 2017 EPS $1.31 vs. estimates of $1.33

Management Commentary

-CN Rail increasing capital investments to meet demand and future growth.

-Luc Jobin, president and chief executive officer, said: “we are increasing investments in our infrastructure and equipment by $100 million [Canadian], for a total capital program of C$2.7 billion in 2017″.

Financial Highlights

-Operating expenses rose 10% to $1.76 Billion.

-Total revenue rose 7% to $3.22 Billion.

-Net income down 1% to $958 million.

-CN Rail reported an operating ratio of 54.7%, increasing from 53.3% a year ago.

My Comments

-Always a warning to see expenses grow faster than revenues, although these seem short term.

-Unfortunate to see the operating ratio increase, when compared to CP rail‘s decreasing.

-Although the Canadian Dollar has appreciated relative to the US dollar, I expect a pullback and an exchange rate closer to $0.75 CAD/USD. This should help offset some of the rising costs.

Key Metrics

-Dividend growth 5-year average: 17.3%.

-Current P/E: 20.71 vs. 5-year average P/E: 18.3.

-EPS growth: 8.33%.

Recommendation: Hold

-I expect CN rail to sell off in the short-term which should present long-term investors with a buying opportunity.

-Along with CP Rail, CN Rail should be viewed as a core holding in any portfolio and quarterly fluctuations should not impact an investing decision.

-Management stated: “We are reaffirming our 2017 adjusted diluted EPS outlook of $4.95 to $5.10, compared to last year’s adjusted diluted EPS of $4.59.”.

-Management highlights their commitment to grow earnings for investors and buy back shares, reaffirming CN Rail’s long-term focus to drive shareholder value.

Disclosure

I, Jared Flomen, do own share of CN Rail.

Please consult a financial advisor before making investment decisions. This report represents my views, not actionable advice.