(The following story appeared on the National Post website on January 23.)
OTTAWA — After turning in a better-than-expected fourth quarter result yesterday, Canadian National Railway Co. said it was optimistic about the coming year despite the current economic woes in the North American market.
The country’s largest railway said it expects mid-to-high single digit earnings growth in 2008, or between $3.57 and $3.70 a share, after the economy takes a “soft landing” in the latter part of the year.
Investors reacted positively to CN’s rosy outlook, with shares in the railway jumping 5% so far Wednesday on the Toronto Stock Exchange.
UBS analyst Fadi Chamoun said in a note to clients Wednesday that with several new initiatives down the line – including the port of Prince Rupert ramping up and the planned EJ&E acquisition expected to add much-needed fluidity to its lines – earnings are likely to pop in the coming years.
“The current recession in the housing market and the rapid appreciation of the Canadian dollar have masked CN Rail’s earnings power in the past 12 months,” Mr. Chamoun said in a note to clients. “We believe that CN Rail’s continued investment in productivity, ongoing share buyback and projected ramp-up of some of its revenue initiatives… build a solid base for recovering earnings power in the next two years.”
He said he is projecting earnings per share of $4.40 in 2009, and introduced a new estimate for 2010 of $5 a share.
National Bank Financial analyst David Newman lowered his 2008 guidance based the company’s outlook and other considerations.
However, he added that he likes the long-term prospects of the railway with continued pricing power, productivity improvements and other top line tailwinds well positioned to offset somewhat the current economic headwinds, a strong loonie, and high oil prices.
He did, however, reduce his earnings estimate to $3.65 per share in 2008, down from $3.82, based on the CN’s guidance and other considerations. He also lowered his price target from $55 a share from $59, and introduced a 2009 earnings estimate of $4.08 a share. His “outperform” rating remains unchanged.