Canadian National Railway (TSX:CNR) has a long-standing reputation as a reliable player in the transportation and logistics sector. Its expansive rail network and strategic connections across North America make it a vital part of the economy. But is that still going to be the case in the next three years? Let’s dive into this great railway stock and see.
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Into earnings
CNR stock’s strong positioning was evident in its most recent earnings report. In the third quarter of 2024, CNR stock reported earnings per share (EPS) of $1.72, slightly surpassing the consensus estimate of $1.70. The company’s quarterly revenue rose by 3.1% year over year to $4.11 billion, exceeding analyst expectations of $4.08 billion. This performance underscores CNR stock’s ability to navigate challenges and capitalize on growth opportunities.
In terms of the broader financial picture, CNR’s balance sheet and cash flow remain robust. The company reported an operating cash flow of $7.12 billion for the trailing 12 months and a levered free cash flow of $2.6 billion. However, its debt load is substantial, with total debt amounting to $21.06 billion and a debt-to-equity ratio of 108.24%. While this leverage level might raise some eyebrows, CNR’s stable revenue streams and strong return on equity, measured at 27.55%, suggest that the company is managing its financial obligations effectively.
The next year
The near-term outlook for CNR stock has been somewhat tempered by external challenges. In September 2024, the company revised its profit forecast due to disruptions from labour stoppages and wildfires in Alberta. These events negatively impacted earnings by approximately $0.20 per share in that quarter. Consequently, management adjusted its guidance for 2024, now anticipating low single-digit percentage growth in adjusted diluted EPS, down from the previous forecast of mid- to high single-digit growth.
Yet dividend investors will find CNR stock attractive. The company currently offers a forward annual dividend rate of $3.38, yielding 2.25%. This dividend payout is well-supported by a payout ratio of 39.35%, leaving ample room for future increases. Over the past five years, the company’s average dividend yield was 1.82%. Thus indicating that current levels are relatively generous. With a strong history of dividend growth and a solid financial foundation, CNR remains a reliable choice for income-focused investors.
Future outlook
Looking ahead three years, CNR stock’s prospects appear strong, provided it can navigate ongoing challenges and capitalize on its growth opportunities. The company is likely to benefit from ongoing infrastructure investments and its strategic role in facilitating North American trade. Rail transport remains a critical component of the supply chain, and CNR’s expansive network positions it well to capture a significant share of this market. Additionally, the company’s focus on improving efficiency and leveraging technology should help maintain its competitive edge.
That said, investors should be mindful of potential risks. Economic downturns, changes in trade policy, and environmental challenges like wildfires and extreme weather can all impact CNR’s operations. Furthermore, the company’s high debt levels could become a concern if interest rates continue to rise. Despite these risks, CNR stock’s strong fundamentals and proven track record make it a compelling long-term investment.
Bottom line
In three years, CNR stock is likely to maintain its position as a leader in the transportation sector. With steady growth in earnings, robust dividend payments, and a focus on operational excellence, CNR stock could surpass its historical highs, making it an attractive option for both growth and income-oriented investors. While short-term volatility may occur, the long-term outlook remains positive, ensuring that CNR stock remains a cornerstone of Canadian portfolios.
