Canadian National's Q2 revenue up 12%. Is CNR a railway stock to buy?

Summary 

  • CN Rail has posted positive earnings for second quarter 2021 and announced dividends for Q3 2021. 
  • The transport company continues to pursue Kansas City Southern deal, awaiting regulatory approval. 
  • The rail stock’s price trajectory is likely to enter a bullish zone in the third quarter. 

Canadian National Railway Company (TSX:CNR) reported robust double-digit growth in revenue for the second quarter of 2021 on Tuesday, July 20.

The heavy freight transporter reported high export growth in commodities such as crude oil and lumber in Q2 2021, which helped its operating income gain 79 per cent on a year-over-year (YoY) basis.

CN Rail’s cash flow stood at 1.28 billion at the end of the first half of 2021. 

The company’s latest financial results came out ahead of the Surface Transportation Board's decision on the Kansas City Southern (KCS) deal.

In May this year, CN Rail disclosed that it has entered a merger agreement with the US-based railroad service provider. The C$ 92-billion market cap firm is likely to buy KCS in a superior bid worth C$ 33.6 billion, beating rival Canadian Pacific Railway Limited’s (TSX:CP) offer of C$ 29 billion. 

Let us look at CN Rail’s price performance and financials in detail.

Canadian National Railway Company (TSX:CNR)

The transport stock traded flat this month as investors await the final regulatory decision regarding the KCS deal. On a year-to-date (YTD) basis, CNR stock is down more than seven per cent despite positive earnings. 

The rail stock has dropped 13 per cent against its one-year high of C$ 149.44 apiece (April 19, 2021). However, its earnings per share stood at C$ 4.97 as of July 20. 

The national railway will continue to pay a quarterly dividend of C$ 0.615 apiece in Q3 2021, it announced on Tuesday. Its current dividend yield is 1.895 per cent and return on equity is 19.22 per cent. 

CN Rail's one-year price chart against moving average multiple. (Source: Refinitiv)

CN Rail’s share price trajectory has fallen below its moving average multiple, representing a bearish trend. However, the stock may recover in the upcoming trading sessions on the back of its latest financials. 

The Canadian enterprise reported adjusted diluted earnings per share (EPS) of C$1.49, noting a surge of 16 per cent YoY in Q2 2021. Its top line soared 12 per cent YoY to nearly C$ 3.6 billion Q2 2021. 

CN Rail outlook 2021

Canadian National Railways estimates a double-digit adjusted diluted EPS in the current financial year, as compared to last year’s EPS of C$ 5.31. The company expects to register free cash flow between C$ 3 billion and C$ 3.3 billion in 2021. 

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