CNI on Expansion Spree

Canadian National Railway Company (CNI - Analyst Report)), which operates the largest rail network in Canada and the only transcontinental network in North America, continues to expand its operations in Southeast Asia by employing Ajay Kumar Singh to look after its Mumbai office.

Mr. Singh having worked as a chief marketing officer for ocean-front terminals in India and Eastern Canada is the perfect candidate for this job as he can easily generate new business prospects across the Southeast Asian countries. Moreover, opening of Mumbai office will help to establish connection with the company’s Canada, U.S. and Southeast Asian business with each other.

During the Mumbai operation, the ports of Halifax and Montreal will form important operational areas for Canadian National Railway as it is through these ports goods will be exported to other Southeast Asian countries.

At present, Canadian National Railway is continuously making inroads to major Southeast Asia cities like Beijing, Tianjin, Qingdao, Shenzhen, Shanghai, Ho Chi Minh City, Hong Kong, Taipei, Seoul and Tokyo. Hence, opening of the Mumbai office will be another addition to its long-term goal.

Canadian National expects strong demand across all its businesses with improvement in wholesale and retail market supporting high business volumes for the company. As a result, the company plans to invest C$1.8 billion this year to upgrade its railway infrastructure project. So, opening of offices across Southeast Asian countries is also a part of its aggressive growth plan.

Despite the slowing economy and stiff competition from Canadian Pacific Railway (CP - Analyst Report), we believe the improving operating efficiency along with expansion growth in key markets will help the company achieve strong financial results in the quarters ahead. This has underpinned mid-single digit carload growth and approximately a 10% earnings growth in 2012. Management continues to expect a sustainable operating ratio, given stronger volume growth at low incremental cost with productivity initiatives like improving system velocity and fuel efficiency.

Currently, Canadian National Railway has a Zacks #2 Rank, implying a short-term Buy rating on the stock. However, for the long term, we maintain our Neutral recommendation on the stock.

Based in Montreal, Canada, Canadian National Railway Company is engaged in the rail and related transportation business.