Canadian National Railway (TSX:CNR) is a staple in many Canadian investors’ portfolios. The company has delivered years of solid earnings and dividend growth. However, CNR has hit some tough times. Fires, cold, COVID-19, union strikes, trade wars, and a freight recession have all impacted results.
For two consecutive years, Canadian National Railway made optimistic projections for earnings growth, which were subsequently reduced to near-zero growth. Part of the issues with CN are external and out of its control.
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Canadian National Railway has had a tough time for several years
New issues and challenges continue to stack up against it. The new management team has failed to deliver the operational and financial turnaround that was promised when they came in a few years ago.
In its recent second quarter, things did not improve. Freight volumes and revenues declined by 1%. While the operating ratio improved somewhat, adjusted earnings per share (EPS) only increased by 2%. It reduced guidance from low teens to mid-single-digit EPS growth in 2025.
Given the inconsistency, CN has lost some rapport with the market. Its stock is down 10.7% this year and 15% in the past 52 weeks. It’s trading at its best valuation since 2020. Yet, with such uncertainty in the near term, it is hard to say that the stock is a bargain.
I’d buy this railroad over Canadian National Railway
Canadian Pacific Kansas City (TSX:CP) would be my preferred railroad over Canadian National Railway. The company has a record of delivering superior returns over CN.
It fully acquired Kansas City Southern Railway just over two years ago. The combination of these networks makes CP the only singular rail line that spans Canada, the U.S., and Mexico.
This, alongside some great marketing efforts, is leading to strong wins with new customers. Creative routing provides significant optionality to shippers.
Over the past several quarters, CP has delivered sector-leading results. Most rails have seen stagnant or declining growth. In 2024, it delivered 15% revenue growth and 11% adjusted EPS growth. In its most recent quarter, volumes increased 7%, revenues rose 3%, and adjusted EPS rose 7%.
CP continues to target low-teens adjusted EPS for 2025. It has a target for low to mid-teens EPS growth for several years ahead. If it can hit those targets, there is still attractive upside for shareholders (especially if you can buy around $100).
This transport stock could see a rebound in 2026
Another transport stock I’d look at buying over Canadian National Railway is TFI International (TSX:TFII). Like CN, it is a bit of a broken story. However, I believe it could have a very attractive rebound if the North American freight market starts to recover.
TFI still has the same management team that helped grow this stock by a 17.3% compounded annual return over the past decade. Its secret sauce is low-cost operations and many smart acquisitions.
While its stock is down 33% in 2025, the company is prudently buying back shares. Strong free cash flow generation is helping its balance sheet improve. In 2026, it will likely return to making steady acquisitions again. Likewise, it is working on improving its U.S. operations. Turnaround efforts could yield good results next year.
The Foolish takeaway
While TFI stock isn’t pretty, I would still add it over Canadian National Railway right now. I would rather own a company with a skilled capital allocator at the helm than one that has persistent missteps and problems. When the freight market recovers, there could be considerable upside for best-in-class transportation operators like TFI and CP.
