(The following story by David Berman appeared on the Globe and Mail website on April 7.)
TORONTO — Canada’s railway stocks have not exactly been ripping up the tracks with their high-speed performance lately. Higher fuel costs, terrible weather conditions and a rising Canadian dollar are likely to translate into disappointing earnings when the railways report their first-quarter results in the third week of April.
Cherilyn Radbourne, an analyst at Scotia Capital, chopped her earnings estimates the second time for Canadian National Railway Co. to 60 cents a share, from 64 cents and 71 cents previously. Similarly, for Canadian Pacific Railway Ltd., her new estimate is down to 67 cents a share, from 75 cents and 82 cents previously.
“Our first cuts were made on March 19, with three weeks of traffic and performance data yet to be reported for the busiest month of the quarter, and it appears we did not cut far enough,” she said in a note to clients.
The good news? Ms. Radbourne believes that the railways’ big challenges will subside as the year progresses: Fuel costs should be offset through higher fuel surcharges, the weather will improve – hey, it’s baseball season after all – and the loonie’s year-over-year rise will level off.
Still, she is maintaining a “neutral” recommendation on CN and CPR, whose shares rose 7 per cent and 3 per cent, respectively, in the first quarter – beating the S&P/TSX composite index handsomely.
“Both stocks are also up modestly since the middle of March when consensus estimates began to drop. In our opinion, there is some risk to that outperformance when the companies report [their first quarter] results, that we believe may disappoint relative to the consensus,” Ms. Radbourne said.
On Monday at midday, CN’s shares traded at $51.75, up 0.2 per cent. CPR’s shares traded at $68.90, up 2.4 per cent.