Q: CN Rail stock has retreated to $140 from a high of $154, over past 4 weeks.
It dropped 4%, in Tuesday's trading.
Is there any company specific reason to worry or it's the Transports/Market in general ? Do you expect the trend to reverse anytime soon ?
Could you also explain the relationship between Oil prices and rails ?
Thank You
It dropped 4%, in Tuesday's trading.
Is there any company specific reason to worry or it's the Transports/Market in general ? Do you expect the trend to reverse anytime soon ?
Could you also explain the relationship between Oil prices and rails ?
Thank You
5i Research Answer:
Oil is a very large component of costs for railway companies. Estimates are that energy costs account for 20% to 30% of total costs. With oil up 40% in a short period, CNR's margins will be negatively impacted. The company had a derailment in BC this week, but no other specific negative news. But the Iran war, in addition to its impact on oil, could also result in lower shipments and put pressure on the economy in general. The whole sector has been weak of late. We are not sure about a reversal 'soon' but CNR is strong enough to get through this period, and we think it is becoming more attractive and an accumulate buy for patient investors willing to ride out the war.