Canadian National Railway's Valuation Is An Opportunity, Analyst Shifts To Bullish Outlook

Group 1 - Stifel analyst Benjamin J. Nolan upgraded Canadian National Railway Company (CNI) to Buy from Hold, while reducing the price target to $120 from$132 [1] - In 2024, rail equities experienced a lackluster performance, ending down 7% compared to a 23% rise in the S&P [1] - Class 1 railroads saw only 2.2% volume growth in 2024, attributed to unforeseen disruptions and a weaker freight market [1][2] Group 2 - Modest volume and pricing improvements are anticipated in 2025, but it is uncertain if this will lead to significant share price gains or multiple expansions [2] - Canadian National faced persistent disruptions since May, with fourth-quarter RTMs estimated to decline 3.2% year-over-year due to a Canadian port strike, despite a nearly 5% sequential volume increase [2] Group 3 - Fourth-quarter revenue is expected to decline by 2.3%, leading to a full-year top-line growth of 1.4% [3] - The company lowered its guidance to low single-digit growth, with fourth-quarter port disruptions potentially hindering FY24 targets [3] - FY24 EPS is estimated to decline by 2.8% year-over-year to C$7.20 ($5.25), with an operating ratio (OR) improving sequentially by 160 bps to 61.5%, but deteriorating 256 bps year-over-year [3] Group 4 - CNI's stock underperformed peers, down approximately 14% since the fourth quarter began, but this decline was not self-inflicted [4] - There is potential for upside in current valuations as the situation stabilizes and the company refocuses on growth initiatives [4] - CNI shares were up 0.57% at $101.26 at the last check [4]