The Canadian National Railway (TSX:CNR) stock has been performing poorly for several years. Up only 3% over the last five years, with not much in the way of dividends to compensate, it has underperformed the broader Toronto Stock Exchange (TSX) index.
Why has CNR’s performance over the last few years been so lacklustre?
Partially, it has been due to a lack of growth. Over the last three years, CNR compounded its revenue at 0.38%, earnings at 0.58%, and free cash flow (FCF) at -8.8%. It has been a fairly poor showing, and it’s not surprising that the markets have rewarded it with negligible price appreciation.
Another factor – perhaps a cause of the previous one – is economic disruptions. CN Railway ships a lot of goods between Canada and the United States. Ever since Donald Trump took office in January of 2025, Canada has been facing increasing tariffs. Currently, goods that are not covered by the Canada-U.S.-Mexico free trade agreement (CUSMA) are tariffed at a rate of 35%, except for energy. This is a pretty steep tariff, steep enough that it has discouraged the shipment of some goods across the Canada-U.S. border, notably steel, lumber, and automobiles. These are exactly the kinds of things that CN Railway ships to the United States.
So, CN Railway is growing less quickly than it did in the past, and that’s showing up in its stock price. The question now is, “What’s going to happen going forward?” In the ensuing paragraphs, I will explore and attempt to answer that question.
Recent earnings
To get a feel for what’s coming, it helps to look at what happened recently. With that in mind, here is how CN Railway performed in its most recent quarterly earnings release.
- Revenue: $4.4 billion, up 2%.
- Operating income: $1.7 billion, up 6%.
- Net income: $1.3 billion, up 9%.
- Diluted earnings per share (EPS): $2.03, up 12%.
Broadly, these results were better than those in most of the last four quarters, perhaps indicating that CNR may be starting to turn things around.
Tariff impacts
One factor that would definitely improve CN Railway’s fortunes would be a reversal of Donald Trump’s tariffs on Canada. The tariffs are measurably reducing shipments of Canadian steel, lumber, and cars to the United States. These are among the categories of goods that Canada sends to the United States, so if the tariffs were reversed, then CNR’s business would likely pick up. On that note: the U.S. House of Representatives recently allowed a vote on curtailing Trump’s tariff authority to proceed, and the Supreme Court is set to vote on Trump’s tariffs on February 20. So, there could be some progress.
Valuation
Last but not least, we need to look at CNR’s valuation multiples. Examples of these include:
- P/E ratio: 18.8.
- Price/sales: 5.2.
- Price/book: 4.1.
- Price/cash flow: 12.5.
These multiples are not exactly deep value territory, but they are below average for the TSX, indicating that CNR may be able to regain some lost ground – particularly if we see some relief on the tariff front.
Foolish takeaway
Taking everything into account, I think CNR will do fine in the year ahead. I’d be comfortable holding the stock, which I held in the past, though it’s not the most intriguing opportunity I can think of.
