(The following appeared on the National Post website on April 3.)
OTTAWA — Earnings at Canadian railways are expected once again to be hit by severe winter weather and high fuel prices in March, issues that were exacerbated by lowered freight rates for Canadian grains during the course of the month.
After already lowering his first quarter earnings estimate once this year, UBS analyst Fadi Chamoun said Thursday he was further reducing his outlook on both Canadian National Railway Co. and Canadian Pacific Railway Ltd.
UBS is now expecting CN to post earnings per share of 60¢ in the first quarter, down from 64¢, and $3.58 per share for the year, down from $3.62. His price target was also cut to $62 from $65 per share after he reduced CN’s PE target multiple to 14.5 times from 15 times.
Mr. Chamoun also lowered his earnings estimate for CP to 70¢ in the first quarter, down from 80¢, and to $4.68 for the year, down from $4.72. His price target and PE multiple for the railway remains unchanged and he kept his “buy” rating on both stocks.
“Canadian railroads have outperformed the market year-to-date by a wide margin,” Mr. Chamoun said in note to clients. “Given weak near-term results further out-performance may be unlikely in the near-term. On a 12-month basis, however, we think the investment merits remain favourable provided the economy recovers and EPS growth re-accelerates in 2009.”