After a Weak Start, Will Canadian National Railway Company Finish 2018 on a Strong Note?

Canadian National Railway Company (TSX:CNR)(NYSE:CNI) delivered an in-line Q1 2018 which factored in a slowdown, but is the company ripe for a better finish to 2018?

| More on:
The Motley Fool

In case you haven’t been following closely, Canadian National Railway Company (TSX:CNR)(NYSE:CNI) ousted its CEO, Luc Jobin, following what can only be described as severe capacity issues to kick off the start of 2018. Jean-Jacques Ruest is serving as the company’s interim CEO; however, unlike his predecessors, he’s not known as a “rail guy.”

Although it may seem like CN Rail is in dire need of another Hunter Harrison at its helm to deal with capacity issues that are reaching a level of “urgency,”  investors should feel comfortable taking a contrarian position in the stock amidst the harsh industrial environment and lack of certainty regarding who will get the profit train back on the right track.

A slow Q1 2018 that was relatively in line with expectations

CN Rail clocked in an EPS of $1.00 for the quarter, which was in line with analysts’ expectations. Many expected a slowdown for the quarter amid difficult weather conditions and necessary expenditures that resulted in a 9% year-over-year increase in operating expenses. As a result, CN Rail’s operating ratio rose by 600 basis points to 67.8% (lower is better), which is nothing to write home about, especially since I don’t believe that it indicates inefficiency going forward.

Looking ahead, CN Rail definitely looks like it can get back on the growth track in order to meet what can only be described as an underwhelming backlog of shipments. Infrastructure improvements are slated for completion, and inevitably, the company’s efficiency will be trending downward once again.

“The major capital investment that will help us most is the installation of a double-track out West,” said Ruest in CN Rail’s annual meeting. “We’re also building more sidings so we can have more trains on the grid at the same time. In sections where there are too many trains, we’re going to have sections of double tracks.”

Given this promising commentary from the interim CEO, I believe that CN Rail is in great shape to address the bottleneck in rail shipments. As such, CN Rail’s status as “North America’s most efficient railroad” will not be in jeopardy, although the recent slowdown may indicate such.

Bottom line

At these levels, CN Rail is a very attractively valued stock with a relative margin of safety. I think the public is overly concerned with the recent slowdown and the lack of a permanent leader following Jobin’s abrupt departure from the helm.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of Canadian National Railway. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of Canadian National Railway. Canadian National Railway is a recommendation of Stock Advisor Canada.

More on Investing

A plant grows from coins.
Dividend Stocks

Dividend Stocks: What’s Better? Growth or Consistency?

Are you trying to invest in dividend stocks? What’s better, growth or consistency? Here’s my take.

Read more »

Stocks for Beginners

After Hitting 52-Week Highs, TIH Stock Is Down: Here’s What Happened

TIH (TSX:TIH) stock has seen a huge rally in 2023, but dropped earlier in April as an analyst weighed in…

Read more »

stock market
Investing

2 Top TSX Bargain Stocks That Could Be Ready for a Bull Run

These 2 TSX stocks are already rallying on recent results that have been stronger than expected.

Read more »

Cogs turning against each other
Dividend Stocks

How to Build a Bulletproof Monthly Passive Income Portfolio With Just $5,000

Looking for solid stocks for a bulletproof income portfolio? Consider adding these two REITs.

Read more »

Gold bullion on a chart
Energy Stocks

Have $500? 2 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

Torex Gold Resources (TSX:TXG) stock and one undervalued TSX energy stock could rise as identified scenarios play out.

Read more »

clock time
Dividend Stocks

Is Now the Right Time to Buy goeasy Stock? Here’s My Take

Shares of goeasy stock (TSX:GSY) slumped last year on a federal announcement, but that has all changed since then.

Read more »

Illustration of bull and bear
Investing

The Bulls Are Coming: 2 of the Best Growth Stocks to Buy Now to Get Ahead

Alimentation Couche-Tard (TSX:ATD) and MTY Food Group (TSX:MTY) stocks look way too cheap to ignore at these levels.

Read more »

Bank sign on traditional europe building facade
Stocks for Beginners

1 Magnificent TSX Dividend Stock Down 22% to Buy and Hold Forever

This dividend stock may be down 22% from all-time highs, but is up 17% in the last year alone. And…

Read more »