Welcome to ‘Stock Teasers’, where we aim to provide investment research on a wide range of topics. In this edition, Cross-Border Stocks, we spotlight one Canadian stock and one US stock, regardless of sector or size. Let’s dive in!
Canadian Stock: Canadian National Railway Company (CNR)
Canadian National Railway (CNR) is one of the largest railroads in North America. The company has been around for many decades and operates in a favourable industry structure as a duopoly along with Canadian Pacific Kansas City (CP) in Canada. CNR has been one of the most solid performers in the Canadian industrial sectors over the years. CNR’s 20-year total return was around 14.4% compounded annual growth rate (CAGR) with dividends included.
In terms of its financials, it pays a decent dividend yield of 2.0%, along with a 4.4% share buyback yield on the trailing twelve-month basis. It has demonstrated a solid organic growth profile over the years due to the tremendous pricing power of the rails industry. Going forward, management expects to continue to compound its EPS in the range of 12%-15% over the long term. It trades at a reasonable valuation of 19.5X forward earnings, a slight discount to the company’s historical averages but on par with the overall industry.
We believe that CNR’s management can continue to grow organically through a combination of volume growth and price adjustment over time along with improved operational efficiency to create long-term shareholder value. CNR has shareholder-friendly policies with a generous capital returns program that is partially supported by a moderately leveraged balance sheet. We think the company is an above-average operator in the industry that trades at an attractive valuation.