(The following story by Scott Deveau appeared on the National Post website on October 11.)
OTTAWA — A poor Canadian harvest, a deteriorating economic outlook in the U.S., higher than expected fuel costs and a strong Canadian dollar are expected to erode the earnings of Canada’s two largest railways, Canadian National Railway Co. (CNR/TSX) and Canadian Pacific Railway Ltd. (CP/TSX), according to Blackmont Capital analyst Avi Dalfen.
CP, however, has sustained its intermodal growth and increased its coal shipments so far this year, he said. Canada’s No. 2 railway also enjoys has a relatively low exposure to the U.S. economy, which will help it weather the downturn.
Nevertheless, due to the other headwinds, Mr. Dalfen lowered his earnings estimate for CP by 19¢ a share this year and 34¢ a share in 2008 to $3.99 and $4.35 respectively. His new target price for CP is $78.50.
Likewise, Mr. Dalfen lowered his estimated earnings per share for its larger domestic rival, CN, by 20¢ a share this year and 47¢ share in 2008 to $3.33 and $3.76 respectively. His new target price for CN is $59.75 down from his previous estimate of $63.