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TSX Stocks: What to Watch as 2 Canadian Titans Report Q2 Next Week

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Many market experts see Canadian corporations taking a much bigger hit in their second-quarter earnings than the prior quarter. If that really happens, it could endanger the massive rally, and TSX stocks could witness a notable downward pressure in the short term.

The two Canadian bigwigs that are expected to report second-quarter earnings next week include Suncor Energy (TSX:SU)(NYSE:SU) and Canadian National Railway (TSX:CNR)(NYSE:CNI).

Let’s see what’s in store for these top TSX stocks.

Suncor Energy

The second quarter of 2020 saw the biggest decline in crude oil demand amid lockdowns. However, oil prices also witnessed one of the biggest rallies in May after plunging deep in the negative territory a month earlier.

Suncor Energy, which is expected to release Q2 earnings on July 22, could report some of the biggest earnings decline in years amid the energy market downturn last quarter. Analysts tracking the integrated energy company expect it to report a loss of over a billion.

A weaker-than-expected earnings and downbeat management commentary could notably weigh on Suncor Energy stock in the short term. Impairment charges amid the volatile oil prices will also be important to watch.

Suncor reported revenues of $7.7 billion in the last quarter, a decline of 17% year over year. It posted a loss of more than $300 million in the first quarter.

Suncor Energy stock has halved this year and has been trading largely flattish since April.

Despite the gloom and doom, Suncor Energy remains a solid bet for long-term investors. Its large downstream operations could notably outperform and compensate for the underperformance of the upstream segment when the crude oil price falls.

Its strong balance sheet, attractive valuation, and presence in the entire energy supply chain make it a relatively worthy bet in the Canadian energy space.

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Canadian National Railway

Canadian National Railway will report its second-quarter earnings on July 21. This Canadian giant might have a relatively minimal impact of the pandemic because of its essential services business.

It announced record shipments for June 2020, driven by grains and fertilizers. This was CN Rail’s fourth straight record month for carload and intermodal shipments.

Analysts expect its revenues to fall by approximately 17% while profits decline by more than 25% in the second quarter year over year.

The pandemic-related challenges will likely weigh on its financials and could dent its market performance in the short term. However, it is well positioned to survive the downturn and will likely emerge stronger.

CN Rail stands tall among railroad companies mainly due to its 19,600-mile network that connects three coasts: the Atlantic, the Pacific, and the Gulf of Mexico. The unmatchable network serves as the backbone for the North American economy, which is the biggest competitive advantage for the company.

CN Rail is an all-weather stock, and it is generally faster to recover due to its nature of business. This time as well, it was quick to recover and has soared 40% since March.

Despite the rally, CN Rail stock looks fairly valued and offers decent upside potential. Its second-quarter earnings and re-opening economies could drive the stock in short to intermediate term.

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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 Vineet Kulkarni has no position in any of the stocks mentioned. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway.

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