Why You Should Retain Canadian National (CNI) Stock Now

·2-min read

Canadian National Railway Company (CNI) is benefiting from the impressive freight demand scenario and the solid pricing environment. However, low liquidity is a concern.

Factors Favoring CNI

Impressive freight demand and favorable pricing environment are driving Canadian National’s growth. Freight revenues (C$4,400 million), which contributed 96.8% to the top line, increased 23% year over year in the fourth quarter of 2022. Freight revenues at the Petroleum and Chemicals, Metals and minerals, Forest products, Coal, Grain and fertilizers, Intermodal and Automotive segments increased 5%, 27%, 19%, 42%, 48%, 13% and 48%, respectively.

Despite the softening of the overall demand scenario, management expects adjusted earnings per share to increase in low-single-digit percentage year over year in the current year.

Key Risk

Canadian National’s liquidity position is a matter of concern. CNI's current ratio at the end of the fourth quarter of 2022 was 0.84. A current ratio of less than 1 implies that the company doesn't have enough liquid assets to cover its short-term liabilities.

Zacks Rank & Key Picks

Canadian National currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Transportation sector are American Airlines (AAL) and United Airlines (UAL), both carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Airlines is also being aided by the improved air travel demand situation. In the fourth quarter of 2022, AAL reported earnings of $1.17 per share, surpassing the Zacks Consensus Estimate by 2.63%. For first-quarter 2023, AAL’s earnings are expected to register 100.4% growth on a year-over-year basis. For 2023, the company’s earnings are expected to grow 332% on a year-over-year basis.

The Zacks Consensus Estimate for AAL’s full-year 2023 earnings are expected to surge 332% year over year.

United Airlines is seeing steady recovery in domestic and leisure air-travel demand. On the back of upbeat air-travel demand, UAL was profitable in the fourth quarter of 2022. The fourth quarter was the third consecutive profitable quarter at UAL.

Driven by solid demand, management expects total revenue per available seat mile to grow 25% year over year for the first quarter of 2023. Total revenues are anticipated to grow 50% year over year. The Zacks Consensus Estimate for UAL’s full-year 2023 earnings are expected to surge 227% year over year.

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