CNR seems to be going thru a rough patch this year with further reorg ongoing.
What are your thoughts on it versus CP? I am considering switching my CNR position to CP. Thank you.
CP is widely recognized as the industry-leading operator in the rail industry, with stronger volume growth over time and better margin profiles. With that said, its operational efficiency has been mostly priced into the valuation, as CNR is trading at around 16.5x forward P/E, while CP is trading at around 18.8x forward P/E.
The rail industry has been in a down cycle over the last few years, and the setup now looks quite attractive given the trough valuation multiples. If these companies can accelerate volume growth over the next few years, the tariff situation subsides, and operational leverage kicks in, these names could do well over the next three to five years. We are comfortable with the switch, as in our experience, it is often better to pay a premium valuation and stick with the best operator in the industry.