(The following story by Scott Deveau appeared on the Financial Post website on September 23, 2009.)
OTTAWA — While most agree that railroad volumes have hit a bottom, the debate continues whether the tailwinds at North America’s top-tier rails are a “gale force” created by stimulus dollars and likely to blow themselves out, or a “fresh breeze” that makes for steady sailing, according to Steven Hansen, Raymond James analyst.
“Our belief is that the answer lies somewhere in between,” he said in a note to clients Wednesday in which he raised his targets for both Canadian National Railway Co. and Canadian Pacific Railway Ltd.
While volumes are still still down about 17% year-over-year at the railways, they have risen approximately 20% over the past four months, and Mr. Hansen calls it an “impressive updraft” by most accounts. That said, the magnitude and sustainability of that momentum is still being fiercely debated by major railways, including Canada’s top two.
Fred Green, CP chief executive, said earlier this week at a conference in Montreal he was still cautious about when and what shape a recovery would take. He noted that while grain volumes are strong, potash volumes are still down substantially at his railway and that container traffic at the port of Vancouver and Montreal were down between 20% and 30% with retailers shipping fewer goods this year for Christmas.
He said volumes at CP are still down by 19.3% for the third quarter, indicating that they have hit a bottom at this point.
Luc Jobin, Canadian National Railway Co. chief financial officer, was a little more bullish, but said he expects a gradual recovery in volumes from here, rather than a sharp spike.
“A closely watched basket of leading economic indicators continues to support this improving trend, which we view as encouraging,” Mr. Hansen said. “Given our added conviction that the bottom for rail volumes is now indeed in, we are taking this opportunity to increase our targets on both CN and CP.”
He raised his price target on CN to $60 a share, from $56 previously, and maintained his “outperform” rating on the stock.
He raised his CP target to $55 a share, from $45 previously, but maintained his “market perform” rating due to the limit upside on his revised target.