Canadian National Gains From Multiple Tailwinds: Time To Buy?

Canadian National Railway Company (NYSE:CNI) has been benefiting immensely from robust freight demand and volume growth. Rail freight revenues, accounting for bulk of the company’s top line, increased 8.1% in the first nine months of 2018 while carloads (volumes) improved 3.8% in the period.

For the full year, the company anticipates adjusted earnings per share of C$5.30-C$5.45 compared with the year-ago figure of C$4.99. Moreover, revenue ton miles are expected to grow around 5% in the year.

The company’s current-year capital program valued at C$3.5 billion is another positive. The program aimed primarily at buying new rail cars, also focuses on its core capacity projects to meet growing freight demand and investments pertaining to infrastructural maintenance, thus enhancing safety and efficiency of its network in the process. The capital plan includes an approximate C$400 million investment in new track infrastructure, mainly in Western Canada to increase capacity and enhance resiliency.

In October, Canadian National entered into an agreement to acquire The TransX Group of Companies, a Winnipeg-based transportation company. The buyout will enable the company to bolster its supply chain and intermodal businesses across North America.

The company’s initiatives to reward shareholders through dividend payments and share buybacks also raise optimism on the stock. It has a solid track record of maintaining dividend hikes consecutively for more than 20 years. The latest hike was announced this January when the company’s board of directors approved a 10% increase in its quarterly cash dividend to C$0.45 per share (annualized C$1.80). As far as repurchases are concerned, only last month, the board members cleared a share buyback under a new normal course issuer bid (NCIB). The NCIB allows the company to buy, for cancellation, up to 5.5 million shares of common stock. The bid, which commenced on Oct 30, 2018, will terminate by Jan 31, 2019.

The bullish sentiment surrounding the stock is evident from the Zacks Consensus Estimate for current-quarter earnings being revised almost 1% upward in the last 90 days. Also, the consensus mark for full-year earnings has been raised 0.5% over the same time frame.

These factors substantiate the company’s Zacks Rank #2 (Buy) and we believe, the time is ripe for investors to add this stock to their portfolios.

Other Key Picks

Some other top-ranked stocks in the broader Transportation sector are CSX Corporation (NASDAQ:CSX) , Air France-KLM SA (OTC:AFLYY) and Spirit Airlines, Inc. (NYSE:SAVE) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of CSX, Air France-KLM and Spirit Airlines have rallied more than 9%, 38% and 57%, respectively, in the past six months.

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