Thursday, Evercore ISI raised its rating for Canadian National Railway (TSX:CNR) (NYSE:CNI) to Outperform from In Line, also increasing the price target to $123.00 from $116.00. The firm sees a potential for share price reversion, despite a lackluster year for railway stocks compared to the broader market. The stock, currently trading at $101.40, is near its 52-week low, with analysts setting targets ranging from $111 to $142. According to InvestingPro analysis, CNI appears undervalued based on its Fair Value calculation.
The analyst from Evercore ISI noted that the rail sector has had an unremarkable performance in 2024, with the best-performing stock, NSC, only up 0.6% due to an activist campaign that led to significant operational changes. However, NSC still lags behind the S&P 500 by over 2250 basis points and has underperformed more than half of the firm's non-rail coverage universe for the year. Canadian National Railway, in particular, has been a significant underperformer, down 19.3%, trailing only UPS within the analyst's coverage.
The report highlighted that CNI's underperformance was largely due to factors beyond the company's control, such as adverse weather and labor issues. These external challenges have led to consistently negative estimate revisions throughout the year. The analyst believes that, given these were not self-inflicted problems and considering the easier comparisons in the upcoming period, CNI is well-positioned to deliver improved results.
With Canadian National Railway's stock trading at its lowest relative levels compared to peers in over a decade, Evercore ISI suggests that even modest financial improvements could help the shares recover to at least parity, or even return to a premium valuation. The firm's outlook is based on the expectation that the company can overcome the operational challenges faced in the past year.
The company maintains strong fundamentals with an impressive 55% gross profit margin and a P/E ratio of 17.3x. InvestingPro subscribers have access to 12 additional key insights and a comprehensive Pro Research Report that provides deeper analysis of CNI's valuation metrics and growth potential.
In other recent news, Canadian National Railway has been drawing attention with its recent developments. The company's stock was upgraded from Neutral to Buy by Citi, which also increased the price target to $130.00 from $126.00. This upgrade is based on the potential for high single-digit earnings per share (EPS) compound annual growth rate (CAGR) through 2027, as indicated by Citi's analysis.
Furthermore, Canadian National Railway reported a 2% increase in EPS year-over-year, reaching $1.72 in the third quarter of 2024. Despite macroeconomic and labor challenges, the company has managed to maintain steady growth and operational improvements. It anticipates volume growth driven by a robust pipeline of customer opportunities and has made operational adjustments to align resources with demand.
The company's revenue also increased by 3%, and RTMs grew by 2%, driven by long-haul intermodal and refined petroleum products. As per the company's outlook, it expects low-single-digit adjusted diluted EPS growth for 2024 and volume growth in the lower end of the 3% to 5% range.
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