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Here's Why You Should Hold Canadian National (CNI) Stock Now

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·3 min read
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Canadian National Railway Company CNI currently benefits from reduced labor expenses as well as solid freight demand. Meanwhile, a weak balance sheet is a headwind.

CNI has an expected long-term earnings per share (three to five years) growth rate of 11%. Further, earnings are anticipated to register growth of 17% and 12.4% in 2022 and 2023, respectively.

Factors That Augur Well

Strong freight demand and a solid pricing environment are driving Canadian National’s growth. Higher freight revenues at Petroleum and Chemicals; Metals and minerals; Coal, Intermodal; and Automotive segments boosted CNI’s top line in the March quarter. Anticipating the strong freight market conditions to continue, CNI expects adjusted earnings to increase 15-20% in 2022 from the year-ago period’s reported figure.

Canadian National’s bottom line is benefiting from lower labor expenses. With last fall’s non-operating headcount reduction, average headcount declined 7% in the first quarter from the year-ago period’s level.

A Key Risk

Canadian National’s liquidity position is weak. Its cash and cash equivalents stood at $825 million at the end of the first quarter of 2022, much less than the current debt of $1,188 million. This implies that CNI does not have sufficient cash to meet its current debt obligations. Its current ratio at the end of the same period was 0.84, which when less than 1 implies that the company does not have enough liquid assets to cover its short-term liabilities.

Zacks Rank and Stocks to Consider

Canadian National currently carries a Zacks Rank #3 (Hold). You can see  the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the broader Zacks Transportation sector are Ryder System, Inc. R, C.H. Robinson Worldwide, Inc. CHRW and GATX Corporation GATX.

Ryder has a trailing-four quarter surprise of 48.2%, on average, with its earnings having surpassed the Zacks Consensus Estimate in all the last four quarters. R is benefiting from improving economic and freight conditions in the United States.

Revenues in all segments grew (on higher rental revenues, new business and favorable pricing) in first-quarter 2022. R currently carries a Zacks Rank #2 (Buy).

The expected long-term (three-to-five years) earnings per share (EPS) growth rate for C.H. Robinson is pegged at 9%. Improving freight market conditions are aiding CHRW.

In first-quarter 2022, the top line improved 41.8% owing to favorable truckload pricing for customers and handsome profits in ocean freight. CHRW currently carries a Zacks Rank of 2.

GATX has a trailing-four quarter surprise of 40.1%, on average, with its earnings having surpassed the Zacks Consensus Estimate in all the last four quarters. The gradual improvement in the North American railcar leasing market is a huge positive for GATX.

Driven by the upsides, the stock has risen 4.1% in the past year.  GATX currently has a Zacks Rank of 2.


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