Opinions
Steve Carlin
Canadian National R.R.
CNR-T
BUY ON WEAKNESS
Oct 31, 2012
Stock price when the opinion was issued
You might be interested:
Pricing power. Good track record on safety. Last year, economy was weaker, and this hit the rails. Labour disruptions. Volumes were affected. Affirmed guidance after Q1 reporting, expects 10-15% EPS growth (assuming there's still volume growth and no recession). Valuation is now at a very attractive multiple compared to historical levels and to the group.
Went public in 1995, and has increased dividend every year since. Yield is 2.49%.
Same comments as Cargojet: Chart shows a downtrend, being a laggard, but lately is starting to catch up. You can nibble at here. If we're starting a new economic cycle now, it will be positive for CJT and the economy. Expect weakness in a pullback coming. Play the long game and start adding to this now, but gradually.
Recent move down takes it to probably 17x forward PE, not bad. People are overly worried about economic risk. Will get east-west deliveries from the Jansen mine, plus increase in energy infrastructure. Sees more risk north-south. Not having owned it in a long time, he's started picking away at it.
He'd rather buy into weakness than chase things that have been running hard.
Look at the numbers first, story second. Numbers explain why stock's down. Revenue growth over the last 4 quarters hasn't been inspirational; very little growth, averages out to about zero. Margins are OK, but ROC is slipping a bit. For the long term, buy it and forget it, you'll be fine.
He wouldn't enter now. Wants to see the ROC move back up, which would need 5-8% revenue growth. He's had more success investing after results for the quarter are in; you might miss the first day where it gets a little pop, but the stock could also go down for the next 3 months.
He was asked to pick his choice of the two rail companies. Even though there is a freight recession CP has better growth going forward and is a turn-around type of story. It has the best management and real estate. Its merger offers service to a different market. With rail, products can go all the way from the east coast to the west coast and with CP all the way from Canada to Mexico. Changing freight from one train to another by truck is very inefficient.
The Union Pacific-Norfolk merger in the US more likely to happen under this administration than the last and will create more competition among all railroads, including CN. The industry is attractive, because there are few companies, but the downside is the lack of growth and the rails are economically sensitive. They sold off this year under Trump's tariffs. Sit tight, if you own it. Trades at a reasonably 17x PE. He prefers CP for its network across the US and Canada, but it will take time to return to favour.
Company has delivered very good traditional growth over the last couple of years. He would wait until the stock goes into the lower $80’s before buying. $92 target.