Back to top

Image: Bigstock

Is a Beat Likely for Canadian National (CNI) in Q2 Earnings?

Read MoreHide Full Article

Canadian National Railway Company (CNI - Free Report) is scheduled to report second-quarter 2018 earnings numbers on Jul 24, after the closing bell.

Last reported quarter, the company delivered a negative earnings surprise of 1.3%. The bottom line also plunged significantly due to high operating expenses. However, the top line surpassed estimates. Notably, the company suffers an unimpressive earnings history, having underperformed the Zacks Consensus Estimate in three of the trailing four quarters.

Nevertheless, things seem to be looking up for the company in the second quarter. This positive scenario is evident from the Zacks Consensus Estimate for second-quarter earnings being revised 2.9% upward over the last 60 days.

Why a Likely Positive Surprise?

Our proven model shows that Canadian National is likely to beat on earnings in the impending results on the back of a perfect combination of the following two key ingredients:

Zacks ESP: Canadian National has an Earnings ESP of +1.04%, representing the difference between the Most Accurate estimate — pegged higher at $1.06 per share — and the Zacks Consensus Estimate of $1.05. A positive ESP indicates a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Canadian National carries a Zacks Rank #3 (Hold). Notably, stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have significantly higher chances of beating estimates.

Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.


Factors at Play

The growing freight demand is anticipated to boost rail freight revenues and thus aid overall results in the quarter to be reported. Additionally, repeating the previous quarter’s trend, impressive carload growth at the coal and intermodal segments are expected to boost results for the second quarter as well.

Canadian National's trailing 12-month return on equity (ROE) supports its growth potential. The company’s ROE of 23% compares favorably with the 20% ROE for its industry and 16.6% for the S&P 500 index. This is reflective of the company’s efficiency in utilizing its shareholders’ funds.

Owing to the tailwinds, shares of the company have rallied 11.8% in the Apr-Jun period, outperforming the industry’s 8.3% rise.


 

However, the lingering effects of network congestion issues faced by the company this February might hurt its second-quarter results. Also, last month’s ratification of the labor deal with its locomotive engineers will push up costs and might as well hamper the bottom line in the quarter.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also look at some other stocks worth considering like United Parcel Service, Inc. (UPS - Free Report) , Expeditors International of Washington, Inc. (EXPD - Free Report) and Norfolk Southern Corporation (NSC - Free Report) as these too possess the right combination of elements to deliver an earnings beat this reporting cycle.

UPS has an Earnings ESP of +0.54% and a Zacks Rank of 3. The company will report second-quarter earnings on Jul 25.

Expeditors has an Earnings ESP of +1.54% and a Zacks Rank #2. The company will report second-quarter earnings on Aug 7. You can see the complete list of today’s Zacks #1 Rank stocks here.

Norfolk Southern is also a #2 Ranked stock and has an Earnings ESP of +0.28%. The company will announce second-quarter financial numbers on Jul 25.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Published in