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Why Should Investors Retain Canadian National (CNI) Stock?
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Canadian National’s (CNI - Free Report) efforts to reward its shareholders even in these uncertain times are commendable. However, supply-chain woes, network fluidity challenges and weak intermodal scenario are worrisome.
Factors Favoring CNI
We are impressed by the company's efforts to reward its shareholders. To this end, the company's board approved a dividend hike of 8% in January 2023. This marks the company’s 27th annual dividend increase. The company also announced a normal course issuer bid in the range of C$4 billion for cancellation, over a 12-month period up to 32 million common shares. The bid has taken effect from Feb 1, 2023 and runs through Jan 31, 2024.
Despite the ongoing turbulence, its decision to hike its dividend payment is encouraging. Its ability to generate free cash flow supports shareholder-friendly activities. In 2022, the company generated free cash flow to the tune of C$4,259 million.
Canadian National’s return-on-equity (ROE) is pegged at 23.5%, higher the industry’s reading of 23.1%. Higher ROE indicates more efficiency in utilizing the equity capital.
During third-quarter 2023, operating expenses fell 4% year over year to C$2,470 million, owing to freight rate increases, favorable translation impact of a weaker Canadian dollar and higher export volumes of Canadian grain. Operating expenses have also declined in the first nine months of 2023.
Key Risks
Supply-chain disruptions, network fluidity challenges and weak intermodal scenario are hurting the company’s performance. Revenues at the Intermodal segment dipped 34% year over year due to lower revenue ton miles (RTMs) and less carloads in the September quarter. During the third quarter of 2023, RTMs and intermodal carloads both plunged 23%. Intermodal revenues have declined 24% in the first nine months of 2023.
Freight revenues (C$3,820 million), which contributed 95.8% to the top line, decreased 13% year over year in the third quarter of 2023. Freight revenues at the Petroleum and chemicals, Metals and minerals, Forest products, Coal and Intermodal segments fell 11%, 4%, 15%, 6% and 34%, respectively. Freight revenues are down 2% in the first nine months of 2023. Due to softening of the overall demand scenario, management still expects flat-to-slightly-negative year-over-year growth in adjusted earnings per share for 2023.
Adjusted operating ratio (defined as operating expenses as a percentage of revenues) was 62% in third-quarter 2023, up from 57.2% in the year-ago reported quarter. However, lower the metric, the better. This key metric has deteriorated to 61.3% in the first nine months of 2023 from 60.6% in the same period a year-ago. Deterioration in this key metric due to lackluster revenues is concerning.
Zacks Rank & Stocks to Consider
CNI currently carries a Zacks Rank #3 (Hold). Investors interested in the Zacks Transportation sector may consider stocks like Air Canada (ACDVF - Free Report) and SkyWest (SKYW - Free Report) .
Air Canada currently sports a Zacks Rank #1 (Strong Buy). An uptick in passenger traffic is aiding ACDVF. Recently, management announced plans to launch a year-round route between Montreal and Madrid.
The service will commence in May of the following year as part of its expanded international summer 2024 flying schedule to cater to increased demand. The Zacks Consensus Estimate for current-year earnings has jumped 32.6% in the past 60 days.
SkyWest currently carries a Zacks Rank #2 (Buy). SKYW's fleet-modernization efforts are commendable. Initiatives to reward its shareholders also bode well. The Zacks Consensus Estimate for current-quarter earnings has surged 83.3% in the past 60 days.
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Why Should Investors Retain Canadian National (CNI) Stock?
Canadian National’s (CNI - Free Report) efforts to reward its shareholders even in these uncertain times are commendable. However, supply-chain woes, network fluidity challenges and weak intermodal scenario are worrisome.
Factors Favoring CNI
We are impressed by the company's efforts to reward its shareholders. To this end, the company's board approved a dividend hike of 8% in January 2023. This marks the company’s 27th annual dividend increase. The company also announced a normal course issuer bid in the range of C$4 billion for cancellation, over a 12-month period up to 32 million common shares. The bid has taken effect from Feb 1, 2023 and runs through Jan 31, 2024.
Despite the ongoing turbulence, its decision to hike its dividend payment is encouraging. Its ability to generate free cash flow supports shareholder-friendly activities. In 2022, the company generated free cash flow to the tune of C$4,259 million.
Canadian National’s return-on-equity (ROE) is pegged at 23.5%, higher the industry’s reading of 23.1%. Higher ROE indicates more efficiency in utilizing the equity capital.
During third-quarter 2023, operating expenses fell 4% year over year to C$2,470 million, owing to freight rate increases, favorable translation impact of a weaker Canadian dollar and higher export volumes of Canadian grain. Operating expenses have also declined in the first nine months of 2023.
Key Risks
Supply-chain disruptions, network fluidity challenges and weak intermodal scenario are hurting the company’s performance. Revenues at the Intermodal segment dipped 34% year over year due to lower revenue ton miles (RTMs) and less carloads in the September quarter. During the third quarter of 2023, RTMs and intermodal carloads both plunged 23%. Intermodal revenues have declined 24% in the first nine months of 2023.
Freight revenues (C$3,820 million), which contributed 95.8% to the top line, decreased 13% year over year in the third quarter of 2023. Freight revenues at the Petroleum and chemicals, Metals and minerals, Forest products, Coal and Intermodal segments fell 11%, 4%, 15%, 6% and 34%, respectively. Freight revenues are down 2% in the first nine months of 2023. Due to softening of the overall demand scenario, management still expects flat-to-slightly-negative year-over-year growth in adjusted earnings per share for 2023.
Adjusted operating ratio (defined as operating expenses as a percentage of revenues) was 62% in third-quarter 2023, up from 57.2% in the year-ago reported quarter. However, lower the metric, the better. This key metric has deteriorated to 61.3% in the first nine months of 2023 from 60.6% in the same period a year-ago. Deterioration in this key metric due to lackluster revenues is concerning.
Zacks Rank & Stocks to Consider
CNI currently carries a Zacks Rank #3 (Hold). Investors interested in the Zacks Transportation sector may consider stocks like Air Canada (ACDVF - Free Report) and SkyWest (SKYW - Free Report) .
Air Canada currently sports a Zacks Rank #1 (Strong Buy). An uptick in passenger traffic is aiding ACDVF. Recently, management announced plans to launch a year-round route between Montreal and Madrid.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The service will commence in May of the following year as part of its expanded international summer 2024 flying schedule to cater to increased demand. The Zacks Consensus Estimate for current-year earnings has jumped 32.6% in the past 60 days.
SkyWest currently carries a Zacks Rank #2 (Buy). SKYW's fleet-modernization efforts are commendable. Initiatives to reward its shareholders also bode well. The Zacks Consensus Estimate for current-quarter earnings has surged 83.3% in the past 60 days.