Canadian National Railway Company (CNI - Free Report) is benefiting from its shareholder-friendly measures and impressive freight demand. However, rising operating expenses are concerns.
Factors Favoring CNI
We are impressed by CNI's efforts to reward its shareholders. To this end, the company's board approved a dividend hike of 8% in January. This marks its 27th annual dividend increase. Despite the ongoing turbulence, CNI’s decision to hike 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 compared with C$3,296 million in 2021. In the first quarter of 2023, CNI generated free cash flow of C$593 million, up 4%.
Impressive freight demand and a solid pricing environment are driving Canadian National’s growth. Freight revenues of C$4,219 million, which contributed 97.8% to the top line, increased 16.9% year over year in first-quarter 2023. Freight revenues at the Petroleum and Chemicals, Metals and minerals, Forest products, Coal, Grain and Fertilizers, and Automotive segments increased 5%, 23%, 14%, 32%, 38% and 24%, respectively.
Key Risks
In the first quarter of 2023, operating expenses increased by 7% to C$2,651 million mainly due to the negative translation impact of a weaker Canadian dollar, increased purchased services and material expenses, and higher labor and fringe benefits expenses.
Costs are likely to have been high in second-quarter 2023 as well. Escalating fuel prices amid the Russia-Ukraine war also pose a threat to Canadian National’s bottom line.
Zacks Rank
CNI currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors interested in the Zacks Transportation sector are Copa Holdings, S.A. (CPA - Free Report) and Triton International Limited .
Copa Holdings, which presently flaunts a Zacks Rank #1 (Strong Buy), is aided by improved air-travel demand. We are encouraged by the company’s initiatives to modernize its fleet. CPA's focus on its cargo segment is also impressive. You can see the complete list of today’s Zacks #1 Rank stocks here.
For second-quarter and full-year 2023, CPA’s earnings are expected to register 862.5% and 84.14% growth, respectively, on a year-over-year basis.
Triton, which currently carries a Zacks Rank #2 (Buy), is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.
Triton has an impressive liquidity position. TRTN’s current ratio (a measure of liquidity) was 3.97 at the end of first-quarter 2023. A current ratio of more than 1 often indicates that the company will be easily paying off its short-term obligations.
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Canadian National Railway Company (CNI - Free Report) is benefiting from its shareholder-friendly measures and impressive freight demand. However, rising operating expenses are concerns.
Factors Favoring CNI
We are impressed by CNI's efforts to reward its shareholders. To this end, the company's board approved a dividend hike of 8% in January. This marks its 27th annual dividend increase. Despite the ongoing turbulence, CNI’s decision to hike 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 compared with C$3,296 million in 2021. In the first quarter of 2023, CNI generated free cash flow of C$593 million, up 4%.
Impressive freight demand and a solid pricing environment are driving Canadian National’s growth. Freight revenues of C$4,219 million, which contributed 97.8% to the top line, increased 16.9% year over year in first-quarter 2023. Freight revenues at the Petroleum and Chemicals, Metals and minerals, Forest products, Coal, Grain and Fertilizers, and Automotive segments increased 5%, 23%, 14%, 32%, 38% and 24%, respectively.
Key Risks
In the first quarter of 2023, operating expenses increased by 7% to C$2,651 million mainly due to the negative translation impact of a weaker Canadian dollar, increased purchased services and material expenses, and higher labor and fringe benefits expenses.
Costs are likely to have been high in second-quarter 2023 as well. Escalating fuel prices amid the Russia-Ukraine war also pose a threat to Canadian National’s bottom line.
Zacks Rank
CNI currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors interested in the Zacks Transportation sector are Copa Holdings, S.A. (CPA - Free Report) and Triton International Limited .
Copa Holdings, which presently flaunts a Zacks Rank #1 (Strong Buy), is aided by improved air-travel demand. We are encouraged by the company’s initiatives to modernize its fleet. CPA's focus on its cargo segment is also impressive. You can see the complete list of today’s Zacks #1 Rank stocks here.
For second-quarter and full-year 2023, CPA’s earnings are expected to register 862.5% and 84.14% growth, respectively, on a year-over-year basis.
Triton, which currently carries a Zacks Rank #2 (Buy), is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.
Triton has an impressive liquidity position. TRTN’s current ratio (a measure of liquidity) was 3.97 at the end of first-quarter 2023. A current ratio of more than 1 often indicates that the company will be easily paying off its short-term obligations.
Infrastructure Stock Boom to Sweep America
A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.
The only question is “Will you get into the right stocks early when their growth potential is greatest?”
Zacks has released a Special Report to help you do just that, and today it’s free. Discover 5 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.
Download FREE: How To Profit From Trillions On Spending For Infrastructure >>
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