Canadian National Railway (TSX:CNR) is part of the Canadian railway duopoly that isn’t going away any time soon. Yet after losing out the bid for Kansas City Southern to Canadian Pacific Kansas City (TSX:CP) in recent years, some may question its long-term growth.
But if you’re one of those people, there are a few tricks up the sleeve of CNR stock to pay attention to on the TSX today.
Solid market position
One point going for CNR stock is the aforementioned duopoly. The stock has a foothold in the Canadian railway economy that simply cannot be taken over unless it’s by CP stock itself. Yet that looks unlikely, as CNR stock has consistently delivered strong financial performances over the most recent earnings. This has created revenue and earnings growth that consistently exceeds analyst expectations.
What’s more, the company continues to expand in other ways. This includes across North America and Europe, with not just railway but also diversification into other markets as well. Yet its railway focus offers it diversification, too, through the shipment of coal, oil and agricultural products, just to name a few.
While it may have lost out on the Kansas City deal, it’s now using its cash to make strong investments for more future growth. This includes new technologies to improve its efficiency and productivity and holding a healthy balance sheet to allow for future opportunities.
Beat after beat
CNR stock repeatedly beat out earnings estimates, with the most recent quarter proving its financial stability. The first quarter was so strong, it actually increased its outlook as well.
Diluted earnings per share increased 38% year over year to $1.82, with record first-quarter revenue at $4.3 billion, up 16% since 2022. It also achieved a record first-quarter operating income of $1.66 billion, up 35% year over year.
There were increases across the board, with record first-quarter diluted earnings per share up 39% to $1.82, and free cash flow up 4% to $593 million. Train speeds and deliveries all showed improvement in the double-digit range, providing an updated outlook for 2023. CNR stock now believes it will deliver adjusted earnings-per-share growth in the mid-single digits over 2022, up from low single digits.
“We remain confident in our long-term growth despite current economic uncertainty. Our updated guidance reflects the strength of our scheduled operating model and its ability to drive strong operational results. For the immediate future, we remain focused on running our plan and providing reliable service to our customers.”
Tracy Robinson, president and chief executive officer, CN
What to do now
While CNR stock was disappointed by the results of losing the Kansas City deal, investors were happy to have so much cash on hand. The company’s shares increased 210% in the last decade, wavering just slightly in the last year or so. Shares are only up 2.5% in the last year, at the time of writing.
That makes now a great time to consider CNR stock, with shares underperforming compared to their long-term value. The stock trades at 19.25 times earnings as of writing, which is slightly below the average five-year price-to-earnings ratio of 20.65. There is also a dividend yield of 2.04% to consider and, of course, even more growth in the future.
While CNR stock may have lost out on the major deal of Kansas City Southern, there are still far more opportunities and growth to be had. And investors won’t want to miss out.
