Canadian National Railway (TSX:CNR) stock has really been dragging its feet this year, with shares actually down a little over 5% year to date. Undoubtedly, the company’s new chief executive officer (CEO) Tracy Robinson hasn’t really been able to impress investors thus far.
Though macro headwinds have weighed a bit, the company’s top peer, Canadian Pacific (TSX:CP) has been faring better, with shares up around 6% year to date. At the time of writing, CN and CP Rail boast market caps that are pretty close at just shy of $101 billion. If CP, led by CEO Keith Kreel, continues its pace, I think we could see a passing of the torch in the Canadian rail scene.
Indeed, it can be tough to stop a freight train in its tracks when it has a considerable amount of momentum behind it. And though CP (or Canadian Pacific Kansas City as it’s now referred to) has a lot going for it with a network that spans Mexico, Canada, and the U.S., I can’t say I’m enthused about the premium multiple.
CN Rail trades at a nice discount to its top rail rival CPKC
Today, shares of CP trade at 23.62 times trailing price to earnings (P/E), with a very modest 0.7% dividend yield.
Meanwhile, CN Rail stock trades at 19.7 times trailing P/E, with a much fatter 2.05% dividend yield. Clearly, CNR stands out as the better value at this juncture. Still, CP does deserve a premium, given the lengthy track record of its top boss in Keith Creel.
As for CN, it’s gone through quite a few CEOs over the past decade. And though Robinson has spent only north of a year at the firm, I’m not so sure what the future holds in the C-suite if the stock fails to break out while its peer CP looks to gain ground.
For now, CN Rail stock is stuck in a bit of a slump. Growth-oriented investors are finding themselves reaching over for CP over CN. And though it can be frustrating to be a CN investor these days, I think it has the potential for considerable upside in a post-recession environment.
A tough quarter; muted guidance for the Canadian railway
For the latest quarter, CN Rail hit a snag, as revenue fell 7% year over year to $4.1 billion. To make matters worse, the operating ratio (OR) worsened by 160 basis points to 60.6%. Indeed, wildfires have had a negative impact on ORs.
Management was forced to lower guidance, with earnings per share on the year expected to be flat at best. Indeed, it’s not great news for CN as it navigates a challenging macro environment. The strengthening of CP’s network, with Kansas City Southern assets aboard, also isn’t helping the cause.
The bottom line on CN vs. CP Rail
Though I view CPKC as having superior management, I find it tough to pass up the value to be had in CN right here. It won’t stay in a slump forever. In due time, I think ORs will be back on the right track, while volume heats up in an economic recovery scenario.
