CNI Joins Operating Units

To enhance its operating efficiency, Canadian National Railway Company (CNI - Analyst Report)), which operates the largest rail network in Canada and the only transcontinental network in North America merged three of its operational units – Elgin, Joliet and Eastern Railway Company into its Wisconsin Central Ltd. (WC) subsidiary.

Canadian National remains highly optimistic about the merger as it will certainly boost its performance going forward.

Canadian National expects strong demand across all its businesses with improvement in wholesale and retail markets supporting high business volumes for the company. Based on which, in 2012, the company had planned to invest C$1.8 billion to upgrade its railway infrastructure project. So, opening of offices across the 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 forthcoming quarters. This has underpinned mid-single digit carload growth and approximately 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 #4 Rank, implying a short-term Sell rating on the stock. For the long term, however, 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.