On Thursday, Stifel analysts announced an upgrade for Canadian National Railway (TSX:CNR) (NYSE:CNI) stock, changing its status from Hold to Buy, albeit with a reduced price target of $120.00, down from the previous $132.00. This decision comes after a period of challenges for the company, including a Canadian port strike which has affected its operations since May.
According to InvestingPro data, CNI is currently trading near its 52-week low of $98.96, with 17 analysts recently revising their earnings expectations downward for the upcoming period.
Canadian National Railway's fourth quarter was marked by a year-over-year decline in revenue ton-miles (RTMs) of 3.2%, although there was a near 5% sequential improvement in volumes. The company's Q4 revenues are expected to fall by 2.3% to $4,370m CAD.
Despite the company's efforts to maintain low single-digit growth, the disruptions in Q4 are likely to hinder Canadian National from achieving its full-year 2024 guidance. The company maintains impressive gross profit margins of 55.08% and will report its next earnings on January 30, 2025.
For the fiscal year 2024, Stifel projects a 2.8% decrease in the company's earnings per share (EPS) to USD $5.25 or $7.20 CAD. The firm anticipates a quarterly volume-driven sequential improvement in the operating ratio (OR) by 160 basis points to 61.5% for Q4, although this still represents a year-over-year deterioration of 256 basis points. The expected full-year 2024 OR is forecasted to be 62.6%, a decline of 180 basis points.
The analysts noted that the stock's performance has been reflective of underperformance relative to expectations for most of the year. However, they also pointed out that the underperformance was not due to the company's own actions. With shares having fallen approximately 14% since the beginning of Q4 and trading at 18 times Stifel's 2025 EPS estimate, the analysts see the current valuation as an opportunity.
They believe the stock has the potential for upside as Canadian National stabilizes and shifts focus back to growth initiatives. InvestingPro analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report, which provides deep-dive analysis of CNI's financials, valuation metrics, and growth prospects.
In other recent news, Canadian National Railway has seen significant developments. The company recently reported a 2% increase in earnings per share year-over-year, reaching $1.72 in the third quarter of 2024. Revenue also increased by 3%, driven by long-haul intermodal and refined petroleum products. In addition, Canadian National Railway reached a new labor agreement with Unifor, expected to provide stability and support for its continued commitment to safe and efficient transport services.
Furthermore, the company's stock has been upgraded by several analyst firms. Jefferies upgraded the stock from Hold to Buy, citing a favorable business climate that could stimulate demand for transportation and logistics services. Evercore ISI also raised its rating to Outperform, suggesting that even modest financial improvements could help the shares recover. Citi, too, upgraded the stock from Neutral to Buy, based on the potential for a high single-digit earnings per share compound annual growth rate through 2027.
These recent developments indicate a positive trajectory for the company as it continues to navigate the market landscape. However, investors should note that these are merely highlights of recent news, and thorough due diligence is recommended before making any investment decisions.
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