Canadian National Railway (TSX:CNR) has been a cornerstone of Canada’s transportation infrastructure for over a century, moving goods across the country and into the United States with remarkable efficiency. As we step into 2025, investors are taking a close look at how this railway giant has performed, what challenges it faces, and whether its stock presents an opportunity for growth in the year ahead. The past year was anything but smooth. But the company’s long-term outlook remains intriguing.
The numbers
CNR stock reported its latest earnings with mixed results. In the fourth quarter of 2024, revenue declined by 3% year over year, coming in at $4.36 billion. This drop was partly due to disruptions from labour strikes and wildfires in Alberta, which impacted freight volumes. Operating income also took a hit, falling 10% to C$1.63 billion, while diluted earnings per share (EPS) plunged a dramatic 45% to $1.82. The railway’s operating ratio, a key measure of efficiency in the industry, worsened from 59.3% in Q4 2023 to 62.6%, indicating higher costs relative to revenue.
Looking at the full-year performance, CNR’s revenue was up slightly, rising 1% to $17.05 billion. However, operating income declined by 5% to $6.25 billion, and diluted EPS fell 18% to C$7.01. These figures highlight the challenges the railway faced throughout 2024, including supply chain disruptions and macroeconomic headwinds that impacted freight demand. That said, the company has proven its resilience in the past and has already outlined ambitious plans for recovery. Management is targeting a 10% to 15% increase in adjusted diluted EPS in 2025, banking on improving efficiency and higher volumes.
What to watch
Despite its strong market position, CNR stock isn’t immune to external risks. The railway industry is highly cyclical, meaning economic downturns can reduce freight volumes and put pressure on revenue. Furthermore, ongoing geopolitical uncertainties, including potential tariff changes in the U.S. and shifting global trade agreements, could impact cross-border transportation. CNR’s recent revenue decline reflects these pressures as companies recalibrate their logistics strategies in response to economic uncertainty. However, rail remains one of the most cost-effective and environmentally friendly transportation methods. So, this plays in CNR’s favour for long-term growth.
Investors should also consider CNR stock’s financial health. The company has a market capitalization of approximately $88.53 billion at writing and remains a dividend-paying stock with a current yield of around 2.52%. While its payout ratio of 48.22% suggests it has room to maintain and grow dividends, rising debt levels are a concern. As of the most recent quarter, total debt stood at $21.37 billion, bringing its debt-to-equity ratio to 101.52%. CNR stock generates strong operating cash flow at $6.7 billion over the trailing 12 months. Yet investors will want to monitor how efficiently the company manages its capital expenditures and debt obligations in the coming quarters.
Value and income
From a valuation perspective, CNR stock is currently trading at a forward price-to-earnings (P/E) ratio of 17.86. This is lower than its five-year average, suggesting the stock may be undervalued relative to historical trends. CNR stock is also trading below its 52-week high of $181.34, which could present an entry point for long-term investors. However, near-term volatility remains a possibility, especially if economic conditions weaken further or inflationary pressures increase operating costs.
For those considering CNR stock as an investment, it’s important to weigh the company’s strengths against the industry risks. While the short-term challenges are evident, CNR’s long-term fundamentals remain solid. The company’s extensive network, consistent dividend payouts, and planned infrastructure investments position it well for future growth. Investors with a long-term perspective may find CNR stock to be a compelling addition to a diversified portfolio, particularly given its role in facilitating trade across North America.
Bottom line
Ultimately, Canadian National Railway is more than just a stock. It’s an economic bellwether. Its performance reflects broader trends in trade, industrial activity, and supply chain logistics. While 2024 tested the company’s resilience, its strategic focus on efficiency and expansion suggests it’s preparing for a strong rebound. For investors willing to ride out some turbulence, CNR stock could still be a rewarding track to follow in 2025.
