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Canadian National (CNI) Firing on All Cylinders: Invest Now?

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Canadian National Railway Company (CNI - Free Report) is currently one of the shining stars of the railroad industry. While shares of the company have rallied 19.7% so far this year, the industry it belongs to gained 12.4%.

 

Volume Growth: Major Positive

Strong volume growth continues to aid Canadian National. In fact, in the second quarter of 2017, the metric increased 14%. Rail freight revenues, which accounted for bulk of the top line, also improved 18%. The top line got a boost from increased volumes in key segments like Canadian grain and fertilizers, overseas intermodal traffic, frac sand and coal.

In the second quarter, freight revenues increased in all segments, 12% at petroleum and chemicals, 33% at Metals and minerals, 6% at forest products, 23% at grain and fertilizers, 17% at Intermodal, 33% at coal and 20% at Automotive. Notably, improvement in the coal scenario is very encouraging for railroads, and Canadian National is no exception.

We are impressed by the company’s efforts to reward shareholders through dividend payments and share buybacks. The company has hiked its dividend for many years now. The latest hike was announced in January 2017, when the company’s board of directors approved a 10% dividend hike in its quarterly cash dividend to C$0.4125 per share (annualized C$1.65).

Estimate Revisions & Other Metrics

Upward estimate revisions reflect optimism in a stock’s prospects. Canadian National scores impressively on this front as well, with the Zacks Consensus Estimate for the current quarter climbing 3.9% in the last month to $1.07 per share. For full-year 2017, the same moved up 4.9% in the same period to $4.06 per share.

Furthermore, the carrier has a solid earnings history outshining the Zacks Consensus Estimate in three of the last four quarters. Evidently, the stock has an attractive projected earnings per share growth rate of 8.3% (for three to five years).

Additionally, Canadian National's trailing 12-month return on equity (ROE) supports its growth potential. Not only has the company’s ROE of 25.4% displayed an upward trend over the last year, it compares favorably with ROE of 20.8% for the industry it belongs to. This is reflective of the fact that it is efficient in using shareholders’ funds.

Currently, the ratio of Canadian National's long-term debt-to-equity (expressed as a percentage) is 58.1. Even though on the higher side, the reading compares favorably with the industry’s 80.1.

Also, the company’s Momentum Score of B highlights its short-term attractiveness. This is because the Zacks Momentum Score indicates when the timing is right to grab a stock and make the most of its momentum.

Moreover, the stock’s Zacks Rank #2 (Buy) when combined with its attractive Momentum score makes it a favorable investing option. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Stocks to Consider

Investors interested in the railroad space may also consider Canadian Pacific Railway Ltd. (CP - Free Report) , USD Partners LP (USDP - Free Report) and Alstom SA (ALSMY - Free Report) . While Canadian Pacific and USD Partners sport a Zacks Rank #1, Alstom holds a Zacks Rank #2.  

Shares of Canadian Pacific and Alstom have rallied more than 6% and 31%, respectively, so far this year. For full-year 2017, the Zacks Consensus Estimate has climbed 2.1% to 96 cents per share at USD Partners in the last month.

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