Canadian National Railway (TSX:CNR) is down more than 20% in the past 12 months. Contrarian TSX investors are wondering if CNR stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) portfolio focused on long-term total returns.
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CNR stock price
CN trades near $140 per share at the time of writing. The stock was close to $180 at this time last year but has been on a steady decline and recently dipped below $140, a level not seen since 2021.
The past year saw CN get hit by a number of challenges that put pressure on results. Labour disputes at ports impacted the flow of goods across CN’s network. The company also had to battle wildfires and bad weather that disrupted operations.
Despite all the shocks, the company delivered decent results in 2024. Revenue rose 1% to $17 billion. Operating income, however, slipped 5% to $6.25 billion on higher expenses. This pushed up the operating ratio to 63.4%. The metric is a measure of the company’s efficiency as it reflects the amount of money the railway spends to generate a dollar of revenue. As such, an increase in the operating ratio means the business was less efficient.
Revenue from hauling oil and chemicals rose 6% last year. Grain and fertilizer shipments saw revenue rise 4%. These are the only segments that improved compared to 2023. All other categories saw revenue dip by 1% to 9%.
Outlook for 2025
CN has a positive outlook for this year, even with all the tariff uncertainty. The company says it plans to deliver adjusted diluted earnings-per-share (EPS) growth of 10% to 15% in 2025. Compound annual adjusted diluted EPS expansion is targeted at high single digits for the 2024 to 2026 timeframe. CN is investing $3.4 billion in capital projects in 2025.
CN generates a large chunk of its revenue in the United States. The strong U.S. dollar will help boost earnings when converted to the Canadian currency. In addition, lower oil prices should drive down fuel costs.
The board raised the dividend by 5% for 2025. This is the 29th consecutive annual dividend increase at CN. Investors who buy the stock at the current share price can get a dividend yield of 2.5%. CN also has a good track record of returning cash to shareholders through stock repurchases. The current buyback plan will see the company repurchase up to 20 million shares over the 12-month period that began February 4, 2025.
Risks
A trade war between Canada and the United States could drive the economies of both countries into a recession. This would have an impact on demand for CN’s services. In addition, the flow of goods across the border could be impacted as Canada looks to secure more international buyers for its commodities and manufactured goods.
Should you buy now?
Near-term volatility should be expected. Contrarian investors, however, might want to start nibbling at this level and look to add to the position on additional weakness. Buying CN stock on a meaningful pullback has historically proven to be a savvy move for patient investors.
