On Wednesday, BMO (TSX:BMO) Capital adjusted its outlook on Canadian National Railway (TSX:CNR) (NYSE:CNI), reducing the price target to $182 from the previous $188 while maintaining an Outperform rating. The firm's analyst cited the second quarter results of 2024, which did not meet the recently lowered expectations, and also acknowledged a downward revision in guidance.
The analyst pointed out that while there are risks to the fiscal year 2024 outlook due to ongoing labor uncertainties and potential volume diversions, these challenges are considered temporary.
The second quarter performance has put a spotlight on the capacity issues in the western corridor, raising concerns about Canadian National Railway's ability to profitably manage its significant growth opportunities. In light of these developments, BMO Capital has revised its forecasts for the company downwards.
The analyst emphasized that despite the setbacks in the second quarter and the reduced guidance, the firm continues to see Canadian National Railway as a strong player in the industry. The current valuation reflects the temporary nature of the headwinds faced by the company, and the Outperform rating suggests confidence in its long-term prospects.
Canadian National Railway's strong pipeline of unique growth opportunities remains a key factor in the analyst's positive rating. However, the ability to capitalize on these opportunities may be impacted by the ongoing labor situation and the capacity constraints highlighted in the recent quarter.
In summary, while BMO Capital has lowered the price target for Canadian National Railway to $182, the firm maintains an optimistic view on the stock's performance going forward, expecting the current challenges to be short-lived.
In other recent news, Canadian National Railway (CN) reported a second-quarter earnings result of $1.84 per share, falling short of the consensus estimate of $1.93 per share, leading RBC (TSX:RY) Capital to reduce its price target for CN's shares. Furthermore, due to potential disruptions from a possible labor strike, CN revised its earnings per share growth forecast to mid- to high-single-digit, down from the previously projected 10%.
In response to these developments, Bernstein SocGen Group downgraded CN's stock from Outperform to Market Perform, citing concerns over near-term prospects, including cost pressures and below-consensus volume expectations. The firm also adjusted the price target to $130.67, a decrease from the prior target of $146.25.
CN's labor negotiations with the Teamsters Canada Rail Conference faced a setback as the offer for binding arbitration was rejected, adding to the company's challenges. The dispute centers around the modernization of the collective agreement, which CN asserts would enhance productivity and work-life balance for its employees.
On a positive note, CN's subsidiary, CNTL, ratified a four-year contract with owner-operators represented by Unifor, ensuring service continuity for trucking container deliveries across Canada until December 31, 2027. Despite a 1% dip in revenues due to lower fuel surcharge and RTMs, CN reported a steady operational performance for the first quarter, with growth in petroleum, chemicals, frac sand, and metals segments.
InvestingPro Insights
As BMO Capital revises its stance on Canadian National Railway (NYSE:CNI), a closer look at the real-time data from InvestingPro provides further context for investors. With a market capitalization of $75.83 billion, Canadian National Railway boasts a Price to Earnings (P/E) ratio of 19.68, reflecting investor sentiment on its earnings capacity. Despite recent downward revisions in guidance and second-quarter performance concerns, the company has maintained a Gross Profit Margin of 55.78% over the last twelve months as of Q1 2024, underscoring its ability to manage costs effectively.
InvestingPro Tips highlight two noteworthy aspects: Canadian National Railway has a track record of raising its dividend for 29 consecutive years, signaling a commitment to shareholder returns. Additionally, the company is recognized as a prominent player in the Ground Transportation industry, which may reassure investors of its standing amidst current capacity and labor challenges.
For those considering a deeper dive into Canadian National Railway's financials and future prospects, InvestingPro offers a suite of additional tips. Subscribers can access these insights and employ the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, which includes a comprehensive list of 13 additional InvestingPro Tips for CNI.
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