This is tied for the 20th-longest dividend-growth streak in the country. Likewise, the company’s high single-digit growth rate tops its Big Three peers. 

Last quarter, the company did not announce its usual bi-annual raise. In light of the pandemic, the company chose to keep the dividend steady. 

Given this, income investors were anxiously awaiting quarterly results. How did TELUS perform? Let’s take a look. 

The earnings report

Before the bell on Friday, the company reported financial results for the second quarter ending June 30, 2020:

It was a mixed quarter for Canada’s second-largest telecom. Earnings of $0.26 per share missed by a penny — a 29% decrease over the second quarter of 2019. On a positive note, revenue of $3.73 billion beat by $190 million — a 3.6% increase over last year. 

Much like we saw from Rogers earlier this week, lower wireless roaming growth was a big headwind in the quarter. Lower roaming revenue was a result of waiving fees and restricted travel. 

One area in which TELUS showed strength was in terms of its subscriber base. The expectation was for negative growth, yet TELUS posted a net increase of 4.9% in its wireless subscriber base. In total, it added 151,000 new customers across all of its segments. 

Strong wireless subscriber growth was partially offset by a decrease of 5.8% decline in mobile phone ARPU, which led to a segment revenue drop of 3.3% year over  year. Overall, I’d consider these to be decent results considering the once-in-a-lifetime pandemic headwind. 

What about TELUS Health? Unfortunately, it continues to be a black box. The only commentary provided was as follows:

“While TELUS Health’s virtual care solutions continued to see strong demand through the second quarter of 2020, we experienced a decrease in revenues coming from our Medisys (MDYO) and Copeman clinics, as these remained closed for most of the quarter and have only began gradually reopening in recent weeks.”

It also briefly touched on TELUS Health’s “growth attributes” in a general statement. Overall, there is not much to go on and the lack of clarity in this area is frustrating. 

The year ahead

Income investors might be wondering about the dividend. The good news is that the dividend was kept steady at $0.2913 per share. Unfortunately, this means that the company’s bi-annual pattern of dividend growth is over. 

Investors can expect the next raise to come along with third-quarter results in November. The company alluded to as much in the first quarter. 

A lack of dividend raise this quarter is also a signal that uncertainty remains. Furthermore, the company refrained from reinstating guidance. “The impact on our business cannot be accurately forecasted as of the date of this news release.”

However, the company did announce it expects to update outlook and guidance next quarter. Only then will investors receive more clarity. 

Is TELUS stock a buy today?

TELUS remains a strong option for investors. Despite the current pandemic, the company is showing its capacity for resilience. Although the uncertainty is far from over, the company is still managing to grow the top line. 

Furthermore, the dividend remains well protected, as cash flow generation remains strong. In the quarter, free cash flow grew by 57% over the second quarter of 2019. This helps offset the concerns around the big earnings drop. 

TELUS has a considerable moat and has proven to be a consistent and reliable performer. It remains a top dividend stock for income investors. 

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Since the company’s IPO in 2015, there has been no stopping Canada’s tech juggernaut. Shopify’s stock price has returned 4,380% since its IPO, and despite calls to the contrary, it simply continues to defy expectations. 

Before Tuesday’s earnings, Shopify’s price was up by 173% on the year. In fact, since March’s lows through mid-July, Shopify accounted for more than 17% of total TSX Index returns. 

Not surprisingly, investors were eagerly anticipating results. How did the company perform? Let’s take a look. 

The earnings report

Before the bell on Tuesday, the company reported financial results for the second quarter ending June 30, 2020:

Shopify put a stamp on its status as the best stock to own on the TSX Index. Earnings of US$1.05 per share crushed estimates for EPS of US$0.02 and revenue of US$714.34 million beat by US$202.78 million. 

Not only did it beat average estimates, results came in well ahead of even the most bullish expectations — EPS of US$0.27 and revenue of US$608.32 million. Shopify beat the most bullish earnings and revenue estimates by 288% and 17.6%, respectively. Let that sink in for a moment. 

Analysts (and the markets) continue to underestimate the company. Since it went public, it has only missed earnings estimates once. In most cases, the company has surpassed earnings and revenue estimates by double digits. 

As per Amy Shapero, chief financial officer, “the strength of Shopify’s value proposition was on full display in our second quarter.” No question. 

Shopify is one of several tech companies benefiting from the pandemic. Consumer habits are quickly shifting, and Shopify is ideally positioned to benefit. In the quarter, new stores grew by 71% and gross merchandise volume (GMV) grew by 119% over the second quarter of 2019. 

Despite the strong headlines, there were a few hiccups. Case in point, the conversion rate of “stores created during the extended 90-day free trial are converting into paid subscribers at a slightly lower rate than merchant cohorts that joined Shopify prior to the pandemic.”  

Likewise, GMV through point of sale (POS) declined by 29% over the second quarter of 2019. This is not all that surprising, as many retail stores had to suspend in-store operations during the pandemic. 

Finally, the company exited the quarter in strong financial position with $4 billion in liquidity. 

The year ahead

Shopify stock can do no wrong, and investors are wondering just how high this stock can go. The truth is, the company is in blue-sky territory and considerable potential remains. 

That being said, investors must temper their expectations. Shopify is unlikely to grow the top line by triple digits, and it also held off providing guidance. This means that there is still considerable uncertainty. 

In terms of GMV through POS, June numbers were beginning to approach pre-pandemic levels and continued to improve in July. However, that can change in an instant if we see another wave of shutdowns. 

The shift in customer behaviour is a consistent theme we’ve hear from several retailers. Count Shopify among those that are confident these new shopping patterns are here to stay. 

Is Shopify stock a buy today?

At this point, a bet against Shopify’s stock has proven unwise. The company continues to deliver and it is establishing itself as a dominant e-commerce solution. The markets embraced second-quarter results, sending its shares to 52-week highs post-earning before settling in at $1,401.23 per share (+7.05%). 

As of writing, Shopify’s trading at 42 times forward sales. Although expensive, if the company continues to defy expectations, then there is no reason to believe the company won’t continue its uptrend. Furthermore, estimates are likely to be revised upwards after this quarter, and valuations on a go-forward basis are likely inflated. 

Bottom line: Shopify is the best stock on the TSX Index. It has been a top performer since it became a publicly traded company, and there are no signs of it slowing down. 

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This quarter will be among the most watched in recent history. Investors will finally begin to grasp the impacts of COVID-19 mitigation efforts and the subsequent economic shutdown. 

Is Telus a buy before earnings? Let’s take a look. 

Q2 expectations

Analysts are expecting Telus to post earnings of $0.28 per share and revenue of $3.45 billion. This represents a drops of 17.6% and 1.7% over the second quarter of 2019.

Looking forward, Canada’s second-largest telecom is expected to see full-year earnings drop by 13.2% in 2020 before rebounding by 12% in 2021. While earnings will remain pressured, revenue is still expected to grow by 2.4% and 8.9% in 2020 and 2021 respectively. 

The significant drop in earnings is to be expected. One need only look at into Rogers Communications’ (TSX:RCI.B)(NYSE:RCI) second-quarter results for insights. 

Rogers, another Big Three telecom, missed on profitability expectations and revenue declined by 16.4% year over year. The biggest impacts on financials included big drops in the wireless service and equipment revenue, and the halving (-50%) of media revenue. Furthermore, roaming revenues dropped by approximately 90% as travel came to a halt. 

Similarly, wireless subscriber growth – a key industry metric – stalled. In fact, Rogers lost 67,000 net wireless subscribers. On the bright side, Rogers isn’t seeing many delayed payments or suspended wireless accounts. 

Bottom line, Rogers’ saw notable impacts across all of its segments, and Telus is likely to experience the same. 

Historical performance

Typically a reliable performer, Suncor’s quarterly earnings results usually come in line with expectations. Over the past 12 quarters, Telus has only missed earnings expectations once. The lone miss came last quarter which included a glimpse into COVID-19 impacts. 

In terms of revenue, Telus has a tendency of beating estimates. It has beat estimates in 10 of the past 12 quarters. Notably, the two misses came in the last four quarters, which implies increasing uncertainty. 

Not surprisingly, revisions have been trending downward. Over the past 90 days, seven of the 15 analysts have revised estimates downwards. On average, quarterly earnings estimates are down 8% over the past few months. Worth noting is that not a single analysts is revising upwards. 

Given these downward revisions, even an earnings beat may not be enough to push Telus’ stock upwards. In fact, it will likely require a meaningful beat along with a better-than-expected outlook to drive any meaningful share price appreciation. Perhaps the company’s burgeoning Health segment can help propel its stock higher. 

Is Telus a buy?

Despite a big market rebound, Telus’ share price is still down by 8% year to date. The industry is facing considerable uncertainty, and although its products are an essential service, the markets are taking a cautious approach with the industry. 

Despite the uncertainty, as one of Canada’s Big Three telecoms, Telus’ dominant market position makes it a core holding. The company currently yields an attractive 5.05% and is a Canadian Dividend Aristocrat. 

Is the company a buy before earnings? Telus is typically not a stock you trade. That said, if you are worried about upcoming earnings, then it might be best to average into your position before and after second-quarter results.

Bottom line, Telus remains a strong foundational stock for investors. 

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The IIROC produces a bi-monthly report that lists the shares short and the net change in number of shares short for all Canadian exchanges. Rising short sales is a sign of growing bearish sentiment. As the S&P/TSX Index marches toward breakeven, it appears that traders believe the market is getting a little pricey. 

S&P/TSX 60

The iShares S&P/TSX 60 ETF (TSX:XIU) is one of the best indicators of market performance. 

XIU data by YCharts

 Given the strong correlation, tracking the short activity against XIU is a good way to gauge market sentiment. Unfortunately, all signs point to continued uncertainty. 

In the last IIROC short report, the number of shares short the XIU jumped to 119.5 million. This represented a change of 7.2 million, and represents the highest short position of 2020. This is a clear sign that traders are betting that the market is due to reverse its upwards trend. 

This is not surprising. The S&P/TSX Index is well off March lows and has posted three consecutive months of gains. Unfortunately, the economy is due for broad declines and the expectation is that economic activity won’t return to pre-pandemic levels until 2022. 

Given this, one can argue there is a disconnect between market strength and economic indicators. 

Largest increases

The gold industry has been white hot. The precious metal is marching toward new highs and gold stocks are finally getting their moment to shine. Are they rising too much, too soon? Traders are starting to either bet, or hedge, against an industry downturn. 

Among those seeing the largest increase in short positions are Wallbridge Mining (TSX:WM) and Kirkland Lake Gold (TSX:KL)(NYSE:KL). Short positions in these two gold stocks have increased by 56.9% and 42.4%, respectively over the previous short sale report. 

Both of these are on the opposite end of the risk spectrum. Wallbridge is a junior exploration company which has yet to begin construction on its flagship Fenelon project. Over the past year, the company’s stock has more than doubled (148%). 

In 2020 however, it has been a different story. At one point, the stock price was up by more than 40%, but as of writing is sitting on gains of only 7.69%. On the bright side, despite the increase in short sale interest, the number of shares short represent only 0.55% of the float. At this point, there’s nothing to be really concerned about. 

For its part, Kirkland Lake is among the largest gold stocks on the Index. After struggling for most of 2020, the company is finally starting to rebound. Now up 10.33% in 2020, bearish bets are increasing. 

There is however, no reason for concern. Once again, the percentage of shares short against the float is less than a percent (0.63%). 

Are short sales a reason for concern?

In terms of Wallbridge and Kirkland Lake, which have seen large increases in short positions, there is nothing to worry about. The percentage of shares short account for a very small portion of shares, and will have little impact on price movement. Similarly, the strength of gold is likely to remain as the markets deal with continued uncertainty. This should prop up gold stocks for the foreseeable future. 

In terms of the broader market, investors will want to pay attention. Since the release of the IIORC short report on July 20th, the markets dropped by 115% basis points. As quarterly results roll in, investors will begin to digest the impacts of the COVID-19 mitigation efforts. 

Will investors be hit with a dose of reality after three consecutive months of bullish sentiment? If short sales are any indication, traders are betting on it. 

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Last week, there were two companies that raised dividends, and another re-instated a previously suspended dividend.

Gold shines

Gold stocks are quickly becoming some of the most reliable dividend stocks in the country. Now that the price of gold is soaring towards all-time highs, gold companies are generating considerable cash flows. Strong cash flows bode well for dividend growth. 

On Thursday, Yamana Gold (TSX:YRI)(NYSE:AUY) became the latest in the industry to raise dividends. The 12% raise marks the third consecutive quarter in which the company raised dividends. The annual dividend has more than doubled, rising from $0.03 per share to $0.07 per share over this period. 

Yamana has a unique approach to raising the dividend. The company aims to pay between $50 to $100 per gross equivalent ounce. The risk with such a strategy is that the dividend will only rise in a bull market and is likely to drop in a gold bear market.  

A new Dividend Aristocrat?

Canadian Pacific Railway (TSX:CP)(NYSE:CP) is a former Canadian Dividend Aristocrat. After a period of operational struggles, the company has kept the dividend steady for a number of years. As such, it lost its Aristocrat status. The good news is that the company has come roaring back and is once again a reliable dividend stock. 

Tuesday’s 14.5% raise marks the fifth consecutive year in which the company has raised the dividend. This means that the company will join the Canadian Dividend Aristocrat list in 2021. Over the course of its streak, the company has grown the dividend by double digits.

As the second-largest railway in the country, Canadian Pacific forms an industry duopoly with Canadian National Railway. With a payout ratio of only 20%, investors can expect CP Rail to be one of the strongest dividend-growth stocks in the country. 

A dividend reinstated

In late March, Mullen Group (TSX:MTL) was one of the many companies to suspend the dividend. The pandemic created an environment of considerable uncertainty, and management found it prudent to suspend the dividend. 

On Wednesday, the company reinstated the monthly dividend at a rate of $0.03 per share. Although the dividend was 40% lower than the pre-pandemic rate, it is certainly good news for shareholders. Mullen joins A&W Revenue Royalties Income Fund as the only companies that have reinstated a previously suspended dividend.

This is a positive development not only for Mullen and A&W shareholders, but for income investors in general. If dividend stocks are beginning to resume payments, it is a sign that clarity is returning to the markets. 

Are these dividend stocks buys today?

Both CP Rail and Yamana Gold make excellent dividend stocks. CP Rail owns a significant moat, has a low payout ratio, and is well positioned to raise the dividend well into the future. 

For its part, Yamana Gold is benefiting from a strong gold price, which should see strong support over the next few years. As for Mullen Group, the resumption of the monthly dividend is a positive development. However, Mullen provides trucking and logistics services to the oil and gas industry — an industry that faces a still uncertain future.

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On the day of the IPO, the company’s share price soared and closed the day at $14.80. A near 100% gain from the company’s IPO price of $7.50 per share. It also represented gains of 28.7% from the opening price of $11.50 per share. 

If you are worried you may have missed out on Canada’s last IPO, don’t be. Dye & Durham still has plenty of room to run. 

Strong demand for IPO

If you are wondering why there was such strong demand for the stock on opening day, you need look no further than the news leading up to the IPO. Dye and Durham priced its IPO at $7.50 per share, which was at the top of its price range. 

Furthermore, it raised $150 million from the offering, up from the $100 million it sought initially. To top it off, demand exceeded available stock by more than $1 billion. Perhaps it was a result of previous failures, but the company and its underwriters had clearly underestimated demand.

This is not surprising. There are few legitimate TSX-listed software as a service (SAAS) tech companies. Canadians are limited in their options, and usually need to go south of the border to gain exposure to high-growth tech stocks. 

A cheap tech company 

At $7.50 per share, the IPO market valued the company at approximately three times sales based on the last trailing 12 months. This is cheap for a software as a service (SAAS) company. In fact, many of its SAAS peers are trading at price-to-sales (P/S) ratios in the double digits. 

As an example, peers such as Lightspeed POS and Docebo are trading at a P/S ratios of 26.41 and 24.09, respectively. In fact, one need only look at both these companies to understand Dye and Durham’s potential. 

Lightspeed’s share price more than doubled in the year following its IPO, and Docebo is up by 145% since it opened on the TSX back in October. It is worth nothing that this strong performance is in relation to the company’s opening trading price. 

These returns make Dye and Durham’s current gains of 21.7% look quite modest. It also means that the company has significant potential. Now trading at only 4.8 times sales, the company’s share price can more than double if it trades in the double digits. 

A high-growth stock

Can it reach a valuation of 10 times sales? Without question. This is a company that has grown revenue by a compound annual growth rate of 76% over the past three years. It is on pace to surpass this growth rate in 2020. Through the first nine months of the year, it generated $60 million in revenue, far eclipsing the $43.8 million for the full year in 2019. 

The company’s growth is bolstered by acquisitions, of which it has made 14 since 2013. It is quickly becoming an industry leader with strong customer retention (109%) and low churn rate (2%). It has more than 25,000 active clients with an average customer relationship of 16.6 years. 

Likewise, it counts all 20 of Canada’s largest legal firms as clients. Dye & Durham’s dominance in the market is notable and should drive considerable growth as more law firms adopt SAAS technology. 

Is Dye & Durham a buy today?

Investing in IPOs comes with considerable risk. This is especially true in early trading and is not for the defensive investor. Case in point, Dye & Durham’s stock price has been consolidating over the past few days and has yet to surpass last Friday’s close of $14.80 per share. 

Give it time. The company is cheap, and, in my opinion, there is a strong bullish case for the stock, especially when one takes into account the valuations of SAAS peers.

The post IPO Alert: Dye & Durham (TSX:DND) Can Double in Price appeared first on The Motley Fool Canada.

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Earlier in the week, I’d indicated that there was little reason to buy Suncor stock before earnings. How did the company perform? Let’s take a look. 

The earnings report

After the bell on Wednesday, the company reported financial results for the second quarter ending June 30, 2020:

All things considered,  it was a disappointing quarter from Suncor. The company posted an operating loss of $0.98 per share, which missed by $0.33, while revenue of $4.25 billion beat by $740 million. Although the numbers look respectable against analysts’ estimates, it is quite a different story year over year. 

The net loss per share is a far cry from earnings of $1.74 per share posted in the second quarter of 2019. Likewise, revenue fell by 45.26% from $7.756 billion last year. 

The big drops over the second quarter were to be expected. Low oil prices took its toll on the industry, and the pandemic exasperated demand. As a result, production fell to 655,500 barrels of oil equivalent per day, an 18.5% drop YOY.

“The company’s results in the second quarter of 2020 were significantly impacted by the COVID-19 pandemic, which has lowered demand for both crude oil and refined products and, combined with the OPEC+ increase in supply, resulted in a significant decline in commodity prices, compared to the prior year quarter.” — Company press release

In other words, the oil and gas industry faced two macroeconomic headwinds simultaneously. This led to Suncor reducing forward cash commitments by $4.5 billion in 2020. 

The year ahead

Now that the price of oil has rebounded off lows, is there reason for investors to be optimistic? First and foremost, Suncor’s fortunes remain tied to the price of oil. 

As Suncor previously announced when it cut the dividend in May, the company’s funds from operations (FFO) breakeven price is US$35/per barrel. The good news is that the price has been consolidating above this level for the past month. 

So long as the economic rebound suffers no notable setbacks, the price of oil may have seen its bottom. Unfortunately, we live in times of considerable uncertainty, and this is no guarantee. 

As per the company, “there are a number of external factors beyond (its) control … including the status of the COVID-19 pandemic and potential future waves.”

On the bright side, the company exited the second quarter in a strong financial position with $9 billion in liquidity. This should be sufficient to maintain the company’s current dividend and revised capital program of $3.8 billion. 

Likewise, Suncor reiterated previously reduced guidance for full-year production of 760,000 boe/d. This is good news and can be a sign of optimism from management

Is Suncor stock a buy today?

Despite what was a decent quarter, it did little to change my neutral outlook on Suncor. The reality is that uncertainty remains, and there are already signs of a potential second wave and additional shutdowns. This is sure to pressure the price of oil over the near future. 

With that in mind, there should be plenty of opportunity for investors to either start or top up existing positions over the next few months. 

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Earlier in the week, I’d questioned if these gains were justified. Canada’s gross domestic product (GDP) is expected to drop by 7.8% in 2020, and we are currently in the midst of a recession. 

As an economic bellwether, investors were anxiously awaiting CN Rail’s quarterly results. How did the company perform? Let’s take a look. 

The earnings report

After the bell on Tuesday, CN Rail reported financial results for the second quarter ending June 30, 2020:

Overall, it was a decent quarter. Earnings of $1.28 per share beat by $0.02, and revenue of $3.21 million missed estimates by $40 million. Year over year, this reflects drops of 59% and 19%, respectively. Not surprisingly, results were negatively impacted by the pandemic, which resulted in lower volumes.

Likewise, the company’s adjusted operating ratio came in at 60.4%, which is slightly below the consensus of 60.9%. It was also 530 basis points lower than the first quarter (65.7$). Likewise, revenue per carload came in at -3.2% when analysts were expecting gains of 3.2%.

On the bright side, CN Rail delivered more than $1 billion in free cash flow in the period. That’s quite a notable achievement considering the once-in-a-lifetime event. Likewise, increased grain shipments partially offset the negative volumes in most every other segment. 

Overall, it was a quarter that largely fell in line with expectations. It was nothing earth shattering, and nothing that points to a quick economic rebound.  

The year ahead

Despite what was a challenging quarter, management remains optimistic on the future. In fact, it is moving forward with expansion plans. 

“I’m pleased to reaffirm our commitment in encouraging the economic recovery through our C$2.9B capital investment plan for 2020 as well as our new investment announcement of the purchase of approximately 1,500 new, efficient, high-capacity, covered hopper cars to expand our grain export business for delivery starting in January of 2021” — Jean-Jacques Ruest, president and CEO

The commitment to increasing its grain business is not surprising. In early July, CN Rail moved 2.7 million metric tonnes (MT) of Canadian grain in June, its fourth consecutive month of record grain movement. At that time, vice-president of Bulk, Allen Foster, expressed confidence “that the high volume of shipments experienced in June will continue until the end of the crop year.” 

It is also worth noting the terminology in the above quote from Mr. Ruest. Specifically, the company is “encouraging the economic recovery through” its investment plans. Although the investment itself is a positive sign, I take the cautious wording to mean that the company is still uncertain about the overall economic outlook. Not surprisingly, CN Rail did not re-instate 2020 guidance. 

Is CN Rail stock a buy today?

Second-quarter results did little to sway my neutral outlook. CN Rail will continue to face headwinds relating to the economic recovery, of which there still exists plenty of unknowns. There are plenty of factors beyond the company’s control that can either lead to an economic recovery or stop it in its tracks — pun intended. 

That being said, the company is the largest railway in Canada and forms a duopoly with rival Canadian Pacific Railway. Given its considerable moat, this is one stock that investors will want to own in their portfolios. At some point, the economy will rebound, and given this, CN Rail is a buy-the-dip candidate.

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This quarter will be among the most watched in recent history. Investors will finally begin to grasp the impacts of COVID-19 mitigation efforts and the subsequent economic shutdown. 

After being among the only majors to announce a dividend cut, is Suncor a buy before earnings? Let’s take a look. 

Q2 expectations

Analysts are expecting Suncor to post a net loss of $0.65 per share and revenue of $4.84 billion. This represents a drop in revenue of 52.10% and compares to earnings per share of $0.80 in the second quarter of 2019.

Looking forward, Canada’s largest integrated oil company is expected to see a full-year net loss of $0.45 per share, before posting positive earnings of $0.55 per share in 2021. To put this into perspective, Suncor generated earnings of $2.79 in 2019. Revenue is expected to drop by 35.10% in 2020 before rebounding by 22.70% in 2021. 

These disappointing numbers are to be expected. The economic shutdown has led to record low oil prices, and although they are off lows, they are still trading at a big discount to pre-pandemic levels. It also means, very few companies are generating positive cash flows. For context, Suncor requires West Texas Intermediate (WTI) prices of ~$35 per barrel to be cash flow positive. 

Given this, it is not surprising that Suncor took the drastic measure of cutting the dividend back in March. The cut effectively ended its 17-year dividend growth streak and came only a couple of months after announcing a dividend raise. 

As a result, Suncor’s share price is down by 45.86% in 2020 and is among the worst-performing oil and gas stocks in North America.

Historical performance

Typically a strong performer, Suncor’s performance relative to estimates has been spotty as of late. Over the past 12 quarters, Suncor’s has only missed earnings expectations four times. However, it has missed in three of the past six quarters. 

In terms of revenue, it has been beat seven times and missed on five occasions. Worth noting, the company has surprised to the upside over the past three quarters. 

Somewhat surprisingly, revisions have been trending upwards. This is likely due to the fact that oil prices are strengthening. Over the past 90 days, six analysts have revised upwards versus only three downward revisions. 

Given these upwards revisions, an earnings beat may be just what Suncor needs to break out of its downward trend. 

Is Suncor a buy?

At current prices, Suncor looks to be offering investors an attractive entry point. That said, the company is highly dependent on a rebound in oil prices. Unfortunately, a meaningful rebound may not happen any time soon. 

As we are seeing in the U.S., a surge in COVID-19 cases can lead to a pullback on economic re-opening efforts. Given this, the market dynamics point to pressured oil prices for the foreseeable future. Even if Suncor beats on earnings, any jump in share price may be short-lived. 

Those pointing to cheap valuations must also be cognizant of the fact that traditional valuation metrics such as the P/E ratio, are not reflective of future performance. Most are historical metrics that will look quite different in a year from now when the full impacts of COVID-19 are reflected. Case in point, Suncor is trading at a forward P/E of 41.82 based on 2021 estimates. It doesn’t look so cheap now, does it? 

At this point, I see little reason to rush into the oil & gas industry. I have a neutral view on Suncor. It will take a significant bump in oil prices for me to consider adding to my position. 

The post Is Suncor (TSX:SU) Stock a Buy Before Earnings? appeared first on The Motley Fool Canada.

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This quarter will be among the most watched in recent history. Investors will finally get insights into the impacts of COVID-19 mitigation efforts and the subsequent economic shutdown. 

Is CN Rail a buy before earnings? Let’s take a look. 

Q2 expectations

Analysts are expecting CN Rail to post earnings of $1.26 per share and revenue of $3.25 billion. This represents drops of 27.17% and 17.90% over the second quarter of 2019. 

Looking forward, Canada’s largest railway is expected to see full-year earnings drop by 20.1% and 13.3% in 2020 and 2021, respectively. Revenue is expected to drop by 7% in 2020 before rebounding by 1.9% in 2020. 

Given this, it is somewhat surprising to see that the stock is hitting 52-week highs. On Friday, CN Rail closed at $129.50, which is an all-time high, and at a 7.6% premium to analysts’ one-year average price target of $118 per share. The company is a long way from March’s 52-week low of $92.09, and one must question whether the big bounce is justifiable. 

This is especially true when one considers that the Bank of Canada expects GDP to drop by 7.8% in 2020. In fact, analysts don’t expect the economy to reach pre-pandemic levels until at least 2022.

As railways are a bellwether of the economy, CN Rail’s second-quarter results will be closely analyzed.

Historical performance

Although CN Rail’s stock price looks pricey given estimates, it has a history of delivering. Over the past 12 quarters, earnings have either beat, or been in line with analysts’ estimates. 

That being said, revenue is less consistent. Over the past 12 quarters it has beat seven times and missed on five occasions. 

It is also worth noting that revisions have been trending downwards. Over the past 90 days, 15 analysts have revised downwards, and earnings estimates now sit 26% lower than where they were only 90 days ago.  

Given these downwards revisions, even an earnings beat may not be enough to push its CN Rail stock upwards. In fact, it will likely require a meaningful beat along with a better-than-expected outlook to drive any meaningful share price appreciation.

Is CN Rail a buy?

On the basis of earnings alone, CN Rail stock is not one I’d aggressively accumulate. The stock price is hitting all-time highs, despite the fact that earnings and revenue will drop in a meaningful way. 

This also means that the company is trading at pretty expensive valuations. It is now trading at 24 times earnings, which is quite pricey for a stock that will not grow earnings for another two years. 

Need another reason to avoid CN Rail’s stock before earnings? Last week, the company entered overbought territory with a 14-day RSI of 72. This means that it is likely due for a short-term dip — a dip that may come along with second-quarter earnings.

All things considered, investors should pay close attention to management’s commentary on the outlook for the second half. As a CN Rail shareholder myself, I’d choose to wait for a meaningful pullback before adding to my position.

The post Is CN Rail (TSX:CNR) Stock a Buy Before Earnings? appeared first on The Motley Fool Canada.

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