Here's Why You Should Retain Canadian National Stock

Canadian National's CNI efforts to reward its shareholders through dividends and buybacks despite the ongoing economic uncertainty are commendable. However, the freight market downturn is severely impacting the company's performance.

Factors Favoring CNI

Canadian National increased its quarterly dividend by 7% in January. This is the 28^th consecutive year when the company announced a dividend hike.

CNI paid quarterly dividends of $0.85 per share, amounting to $540 million in the first quarter of 2024. As of Mar 31, 2024, the company repurchased 3.5 million common shares for $597 million under its current Normal Course Issuer Bid ("NCIB"). Canadian National may repurchase up to 32.0 million common shares between Feb 1, 2024 and Jan 31, 2025 under its current NCIB.

The stock prices of railroad operators tend to be stable, making CNI shares appealing to investors who prefer to avoid significant day-to-day volatility. With a beta of 0.90, CNI is less volatile than the overall market.

Long-haul shipments of refined petroleum products and natural gas liquids drove a 4% year-over-year increase in Petroleum and chemicals freight revenues.Revenues from the Metals and minerals, Grain and fertilizers and Automotive segments were in line with the 2023 figures.

Key Risks

Supply-chain disruptions, network fluidity challenges and a weak intermodal scenario are hurting Canadian National's performance. As a result, the Intermodal segment's revenues declined 5% year over year in the first quarter of 2024.

CNI is grappling with a freight market downturn due to excess capacity exceeding freight volumes. As a result, freight revenues (C$4.14 billion), which accounted for 97.6% of the top line, decreased by 2% year over year in the first quarter of 2024. Revenues in the Forest Products, Coal and Intermodal segments fell 3%, 16% and 5%, respectively.

Operating expenses for the first quarter of 2024 were $2.7 billion compared to $2.6 billion for the same period in 2023. The increase of $52 million, or 2%, was mainly due to higher labor and fringe benefits expenses, driven by general wage increases and a higher average headcount, partly offset by lower fuel prices.

At the end of the first quarter of 2024, CNI's current ratio (a measure of liquidity) was pegged at 0.60. A current ratio of less than 1 is not desirable as it indicates that the company may have problems meeting its short-term obligations.

A glimpse at Canadian National's price trend reveals that its shares have risen 2.4% in the past year compared with its industry's  2.6% appreciation.

Image Source: Zacks Investment Research

Zacks Rank

CNI currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks for investors' consideration in the Zacks Transportation sector include SkyWest SKYW and Kirby Corporation KEX, each sporting a Zacks Rank #1 (Strong Buy) at present.

SkyWest has an expected earnings growth rate of 787% for the current year.

SKYW has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 128%. Shares of SkyWest have jumped 98.4% in the past year.

KEX has an expected earnings growth rate of 42.2% for the current year.

The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 10.3%. Shares of Kirby have climbed 55.7% in the past year.

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