Citi initiates coverage on Canadian National Railway (TSX:CNR) (NYSE: CNI), assigning a Neutral rating to the stock with a price target of $125.00. Citi's analysis highlighted several factors impacting the company's performance, including multiple downward revisions to its outlook.
These revisions have been attributed in part to ongoing labor relations issues, which are increasing inflationary pressure on the company's cost structure.
The competitive landscape for Canadian National Railway has also shifted, with Canadian peer CP acquiring KCS to enhance its network capabilities. This merger allows CP access to the U.S. Gulf Coast and Mexico, challenging Canadian National Railway's significant advantage of tri-coastal access. However, potential integration issues CP may face with KCS could offer Canadian National Railway an opportunity to gain clients and increase its market share.
In other recent news, Duos Technologies Group (NASDAQ:DUOT) has signed a five-year agreement with Canadian National Railway (CN). The deal will enable Duos to expand its Machine Vision/AI Wayside Detection technology services, providing subscription-based safety data for railcar owners and shippers using CN's network. This service aims to enhance the maintenance and safety of railcars, contributing to a more efficient and reliable railway network.
In recent developments, CN has been subject to various analyst upgrades and downgrades. Wells Fargo upgraded CN's stock from Equal Weight to Overweight, citing potential for strong earnings per share (EPS) growth in 2025 despite temporary setbacks. Conversely, BofA Securities downgraded CN's stock to a "Neutral" rating due to labor lockouts and network disruptions, leading to a revision of EPS estimates for the third quarter of 2024 and the full years of 2024 and 2025. Meanwhile, BMO Capital Markets maintains its Outperform rating for CN, suggesting potential for recovery despite these challenges.
CN is also currently involved in a labor dispute with the Teamsters union, resulting in significant disruptions to operations. Despite intervention from the Canadian government proposing binding arbitration and urging an end to the stoppage, the union intends to continue the strike.
InvestingPro Insights
Canadian National Railway's financial metrics and market position offer additional context to Citi's analysis. The company boasts a market capitalization of $71.43 billion, reflecting its significant presence in the ground transportation industry. With a P/E ratio of 18.26, CNI is trading at a premium compared to its near-term earnings growth, aligning with Citi's observation of the company's premium valuation based on its structural advantages.
InvestingPro Tips highlight CNI's impressive gross profit margins, which is evident in the reported gross profit margin of 55.34% for the last twelve months. This robust profitability supports the company's ability to navigate challenges, including the labor relations issues mentioned in the article.
Another InvestingPro Tip notes that CNI has raised its dividend for 28 consecutive years, demonstrating a strong commitment to shareholder returns. This consistent dividend growth, coupled with a current dividend yield of 2.2%, may provide some stability for investors amid the competitive pressures and operational challenges outlined by Citi.
For readers interested in a more comprehensive analysis, InvestingPro offers 13 additional tips for Canadian National Railway, providing a deeper dive into the company's financial health and market position.
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