Canadian National Railway Co. – Value Analysis (TORONTO:CNR) : December 8, 2017

Capitalcube gives Canadian National Railway Co. a score of 88.

Our analysis is based on comparing Canadian National Railway Co. with the following peers – Canadian Pacific Railway Limited, CSX Corporation, Norfolk Southern Corporation, Union Pacific Corporation, Kansas City Southern, Helijet International Inc., Logistec Corporation Class B, Knighthawk Inc., Bombardier Inc. Class B and Gibson Energy Inc. (CP-CA, CSX-US, NSC-US, UNP-US, KSU-US, HJI-CA, LGT.B-CA, KHA.H-CA, BBD.B-CA and GEI-CA).

Investment Outlook

Canadian National Railway Co. has a fundamental score of 88 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative underperformance over the last year and the last month suggest a lagging position.
  • It currently trades at a Price/Book ratio of (5.09).
  • CNR-CA‘s operating performance is relatively good compared to its peers. The market currently does not expect high earnings growth relative to its peers but seems to expect the company to maintain its relatively high rates of return.
  • CNR-CA has relatively high profit margins while operating with median asset turns.
  • Change in the company’s annual revenues seems to be coming at the expense of earnings.
  • CNR-CA‘s return on assets currently and over the past five years suggest that its relatively high operating returns are sustainable.
  • The company’s relatively high gross and pre-tax margins suggest a differentiated product portfolio and tight control on operating costs relative to peers.
  • While CNR-CA‘s revenues in recent years have grown faster than the peer median, the market gives the stock a P/E ratio that is around peer median suggesting that the market has some questions about the company’s long-term strategy.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • CNR-CA has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

CNR-CA has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 11.96% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 19.91%), and a well-cushioned interest coverage level of 11.61x, CNR-CA can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • Of the 10 chosen peers for the company, only 9 of the stocks have an outstanding debt balance. Companies with no debt include KHA.H-CA.

CNR-CA has maintained its Quick & Able profile from the recent year-end.

  • CNR-CA‘s interest coverage is similar to its five-year average interest coverage of 11.43x.
  • The increase in its interest coverage to 11.61x from 11.07x (in 2016) was also accompanied by an increase in its peer median during this period to 6.46x from 5.64x.
  • CNR-CA‘s debt-EV continues to trend downward and is now over one standard deviation below its five-year average debt-EV of 13.83%.
  • The decrease in its debt-EV to 11.96% from 13.82% (in 2016) was also accompanied by a decrease in its peer median during this period to 19.91% from 22.50%.
  • Relative to peers, debt-EV rose 0.72 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Canadian Pacific Railway Limited 21.19 0.53 6.09 26.84
CSX Corporation N/A 1.05 6.84 26.3
Norfolk Southern Corporation 21.49 0.83 5.97 30.54
Union Pacific Corporation 15.81 1.16 11.03 46.19
Kansas City Southern 18.64 0.69 8.97 35.08
Helijet International Inc. 69.14 0.86 2.02 16.25
Logistec Corporation Class B 13.46 1.62 12.46 70.3
Knighthawk Inc. 0 5.37 0 N/A
Bombardier Inc. Class B 80.21 1.01 0.45 -2.5
Gibson Energy Inc. 34.19 0.85 0.47 16.84
Canadian National Railway Company 11.96 0.61 11.61 52.52
Peer Median 19.91 0.86 6.46 28.69
Best In Class 11.96 5.37 12.46 70.3

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Company Profile

Canadian National Railway Co. is engaged in the rail and related transportation business. The company’s services include integrated transportation services: rail, intermodal, trucking, freight forwarding, warehousing, and distribution. It offers movement of a diversified and balanced portfolio of goods including petroleum and chemicals, grain and fertilizers, coal, metals and minerals, forest products, intermodal and automotive. Canadian National Railway was founded on June 6, 1919 and is headquartered in Montreal, Canada.

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