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Canadian National (CNI) Up 3.4% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Canadian National Railway Company (CNI - Free Report) . Shares have added about 3.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Canadian National Beats on Q1 Earnings & Revenues

Canadian National Railway Company’s first-quarter 2017 earnings (on an adjusted basis) of $0.88 per share (or C$1.15) beat the Zacks Consensus Estimate of $0.84. Adjusted earnings climbed 20.55% from the year-ago figure. The company’s bottom line benefited from better expense management.

Quarterly revenues of $2,428.9 million (C$3,206 million) came in above of the Zacks Consensus Estimate of $2,402.5 million but climbed 12.5% year over year. Rail freight revenues, which accounted for bulk of the top line in the quarter, improved 8%. The top line was boosted by increased volumes of grain, frac sand, coal exports, overseas intermodal traffic among other factors.

Operating Results

On a year-over-year basis, freight revenues increased in various segments, 39% at Coal, 1% at Petroleum and Chemicals, 7% at intermodal, 10% at automotive, and 16% each at Metals and Minerals, and grain and fertilizers. However, the same declined 3% at the forest products unit. Overall carloads (volumes) also improved 9% and revenue ton miles (RTMs) climbed 14% year over year. Rail freight revenue per carload declined by 1% in the reported quarter.

Moreover, the metals and minerals sub group performed most impressively with respect to car loads that improved 30%. In fact, the grain and fertilizer segment was the other unit to post a double-digit volume growth. However, coal volumes decreased 8%.

In the quarter under review, operating income climbed 7% year over year to C$1,303 million. Operating ratio (defined as operating expenses as a percentage of revenues) was 59.4% as against 58.9% in the year-ago quarter. Higher fuel costs contributed to the increase in this key metric.

Liquidity

Canadian National exited the first quarter with free cash flow of C$848 million compared with C$584 million a year ago. Adjusted debt at the end of the quarter was C$11,440 million compared with C$10,715 million a year ago.

Outlook Tweaked

Canadian National now expects full-year 2017 earnings per share in the band of C$4.95 to C$5.10 (the earlier outlook had called for earnings per share in 2017 to grow in the mid-single-digit range over adjusted EPS of C$4.59 recorded in 2016). The company now expects to invest C$2.6 billion in 2017 pertaining to its capital program as opposed to C$2.5 billion expected earlier.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. There have been three revisions higher for the current quarter compared to two lower.

VGM Scores

At this time, Canadian National's stock has a nice score of 'B', on both growth and momentum front. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising.  Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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