(The following story by Scott Deveau appeared on the National Post website on October 24.)
OTTAWA — Canadian National Railway Co. (CNR/TSX) said Monday it expects current headwinds will keep earnings growth flat for the year, excluding the proceeds of some real estate sales, but it anticipates a slightly better performance in 2008, though current volatility makes it difficult to say just how much better.
CN reported third quarter earnings per share (EPS) of 93¢, excluding a favorable tax adjustment of 3¢, down 1¢ from last year. Canada’s largest railway said soft forestry volumes and the strong Canadian dollar’s unfavorable impact on its U.S. revenues continued to erode its profits.
“While CN Rail did not formally provide guidance for F2008, management indicated that [earnings per share] growth is likely to be in the high single digit in 2008 assuming a soft landing for the North American economy,” UBS analyst Fadi Chamoun wrote in a note to clients.
While Mr. Chamoun dropped his price target on the stock to $69 from $71 on a lower EPS outlook, he maintained his “buy” rating, noting that the port at Prince Rupert is coming online next week and that CN has had a strong performance in other sectors.
National Bank Financial analyst David Newman also lowered his EPS forecast for this year to $3.41 from $3.50 and his 2008 estimate to $3.82 a share from $3.98. He also dropped his price target to $59 from $61, but maintained his “outperform” rating on the stock.
“CN commented it is cautious about 2008 at the current time,” he said. “Double-digit EPS growth may not be in the cards.”