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Canadian National Railway Company (CNI - Analyst Report)), which operates the largest rail network in Canada, announced plans to open a frac sand terminal north of Grande Prairie, Alta., in Nov 2013. The new facility, spanning 24 acres, would service 550,000 tons of frac sand annually and will be equipped with three tracks to serve 44 railcars for unloading freight. We expect the new terminal to increase intermodal shipments particularly in frac sand franchise, and lead to revenue growth.

Canadian National remains focused on tapping potential opportunities from the rising demand for oil and related products. In Jun 2013, the company announced the ramp-up of its $33 million project related to upgrading a 74-mile rail line between Wisconsin Rapids and Blair, Wis. The upgrade is expected to manage increased shipments for frac sand across Canadian National’s network. The company also upgraded railway lines between Ladysmith and Poskin, Wis., in 2012. Ladysmith to Poskin is also one of the key networks serving frac sand shipment.

Canadian National remains focused on improving rail infrastructural developments. The company plans capital investment of C$2 billion for the year, up from C$1.9 billion stated previously. Approximately, C$1 billion of this would be spent on developing railway track infrastructure to enhance business networks. Further, the company aims to direct C$700 million of the total on market expansion to increase distribution centers and construct intermodal terminals. Moreover, it will spend approximately C$200 million on the purchase of locomotives, intermodal equipment and vehicles. In 2013, Canadian National expects to purchase 40 new and 37 second-hand high-horsepower locomotives. An additional C$100 million expenditure on the upgrade of infrastructure in order to increase network capacity in the Western Corridor has also been assumed.

Besides working on intermodal facilitates, the company expects to equip its locomotives with advanced technologies like Trip Optimizer and Wi-Tronix to increase fuel efficiency. Additionally, it is optimizing its coal trains and potash train cars to accommodate demand fluctuation. We believe Canadian National‘s ability to transport incremental volume at a low cost provides it with greater operating leverage.  However, competitive threats from its major rivals – including Canadian Pacific Railway Limited (CP - Analyst Report), highly unionized workforce and regulatory pressures may impede growth at Canadian National.

Canadian National, which operates with other railroad companies like Kansas City Southern (KSU - Analyst Report) and CSX Corp. (CSX - Analyst Report) currently retains a Zacks Rank #3 (Hold).

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