Canadian National Railway (TSX:CNR), valued at a market cap of $90.27 billion, has created massive wealth for long-term shareholders. In the last 28 years, the TSX stock has returned 6,630% to investors. However, if we account for dividend reinvestments, cumulative returns are much closer to 11,000%. This means a $1,000 investment in CNR stock back in 1997 would be worth $110,000 today.
While CNR stock has delivered market-thumping returns to investors, let’s see if it remains a top investment at the current valuation.
How did Canadian National Railway stock perform in 2024?
According to its recent earnings report, Canadian National Railway weathered significant headwinds in 2024 but is positioning itself for 10-15% earnings growth in 2025 through operational efficiencies and strategic volume initiatives.
CN Railway reported fourth-quarter (Q4) operating income of $1.6 billion, down 10% year over year, with an operating ratio of 62.6%, deteriorating by 330 basis points compared to the same period in 2023. Further, Q4 adjusted diluted earnings per share fell 10% to $1.82.
For 2024, CN Railway delivered adjusted diluted earnings per share (EPS) of $7.10, down just 2% from the previous year despite multiple operational challenges. It generated $3.09 billion in free cash flow, a 20% decrease from 2023, while adjusted return on invested capital (ROIC) was 13.1%, down 140 basis points.
The railway giant faced significant disruptions throughout 2024, including protracted rail and port labour uncertainty starting in May, two-week West Coast and Montreal port labour outages in November, and prolonged cold weather in the Western Region.
A weaker-than-expected macroeconomic environment impacted forest products and construction-related commodities, while fuel price fluctuations negatively impacted EPS by $0.35 per share and operating ratio by approximately 100 basis points.
What’s next for the TSX stock?
Looking ahead to 2025, CN Railway expects 10-15% adjusted diluted EPS growth over 2024, with low- to mid-single-digit RTM (revenue ton-mile) growth, same-store pricing ahead of rail inflation, and incremental margin improvement.
Despite labour and material cost inflation, capital expenditure is projected at $3.4 billion in 2025, similar to 2024. Canadian National Railway started 2025 with strong momentum, reporting 12% RTM growth after the first four weeks of the year.
The company sees opportunities across various business segments in 2025. Growth is expected in the merchandise segment, particularly in petroleum products, with initiatives in natural gas liquids and refined fuels. Additionally, due to growth in industrial production, CNR anticipates expansion in chemicals and plastics.
The bulk segment offers opportunities due to strong corn demand, the full-year effects of new crush capacity in the U.S., and incremental metallurgical production gains in Canadian coal.
Consumer products are expected to recover through leveraging service offerings, with full-year effects of customer wins in international business and recovery of volumes lost due to labour disruptions.
CNR stock: A focus on a growing dividend
Analysts tracking Canadian National Railway expect its sales to rise from $17 billion in 2024 to $20 billion in 2027. Comparatively, adjusted earnings are forecast to grow from $7.1 in 2024 to $10 in 2027. Its free cash flow is projected to improve from $3.15 billion in 2024 to $4.5 billion in 2027.
A growing cash flow should help CNR stock grow its dividends in the near term. Today, it pays shareholders an annual dividend per share of $3.38, indicating a forward yield of 2.35%. Notably, these payouts have risen at an annual rate of over 14% since 1997, enhancing the effective yield over time.
Given its outstanding share count, the transportation giant’s annual dividend expense is around $1.47 billion, indicating a payout ratio of less than 50%. This allows CNR to raise dividends further and strengthen its balance sheet.
Today, CNR stock is priced at 31 times trailing free cash flow. If it maintains a similar multiple, it should be valued at a market cap of $140 billion in early 2028, indicating an upside potential of over 50% from current levels.
