BofA Downgrades Canadian National Railway After CEO Resignation

Canadian National Railway (USA) CNI CEO Luc Jobin was "ousted" from the company after less than two years. The executive departure marks the "most significant" railroad CEO change in years aside from activist involvements and necessitates a downgrade, according to Bank of America Merrill Lynch. 

The Analyst

BofA's Ken Hoexter downgraded Canadian National Railway's stock rating from Neutral to Underperform with a price target lowered from $84 to $72.

The Thesis

Canadian National's reputation as being the best-run North American railroad company over the past 10 years may have taken a "pause," Hoexter said in the downgrade note. (See the analyst's track record here.) 

Its network is now overwhelmed from a notable volume gain over the past two years, the analyst said: "The board noted that insufficient network resiliency, led by high demand, and severe winter weather created immediate operational challenges."

Examples of recent headwinds for the Canadian company include the following, Hoexter said: 

• Quarter-to-date revenue-ton-miles are lower by 5 percent, "well below" the analyst's prior target of 1 percent, which has now been revised to negative 4.7 percent.
• Quarter-to-date carloads are up only 0.7 percent, which is also "well below" the analyst's prior target of 1.7-percent growth.

Canadian National's board said it needs to "respond with speed and innovation" if it wants to maintain its leadership position in the rail market, the analyst said.

Price Action

Shares of Canadian National were down 1.48 percent at $73.68 in the Tuesday afternoon trading session. 

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Photo courtesy of Canadian National.