CN Rail (CNR) plans to invest millions on 'sustainable growth': Buy?

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CN Rail (CNR) plans to invest millions on 'sustainable growth': Buy?

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 CN Rail (CNR) plans to invest millions on 'sustainable growth': Buy?
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Highlights

  • Canadian National (TSX: CNR) improved its revenue by five per cent year-over-year in Q1 2022
  • CNR stock delivered a return of over 12 per cent in 52 weeks
  • The railroad posted an increased free cash flow of C$ 571 million in Q1 2022

Canadian National Railway (TSX: CNR) stocks can interest some investors today as the railway company has disclosed its plan to invest about C$ 25 million in Louisiana and about C$ 85 million in Wisconsin in 2022. These investment plans include initiatives related to technology, capacity and network improvements, decarbonization etc., according to Canadian National’s announcement on Tuesday morning, June 28.

The C$ 100-billion market cap railroad operator said that these investments will enable sustainable growth, improve its rail operations and ensure safe transportation of goods in Louisiana, Wisconsin and across its transcontinental network.

Highlights from CNR’s latest announcements

Canadian National said under its maintenance program in Louisiana, the company plans to replace four miles of rail, install about 20,000 new railway ties, and reconstruct 16 road crossing surfaces. 

In Wisconsin, the large-cap company plans to replace 10 miles of rail, install about 10,000 new ties and reconstruct 53 road crossing surfaces.

In addition, these programs also include maintenance work on CN’s infrastructure, including bridges, tracks, signal systems etc. Recently, the company announced such investments in different Canadian provinces to improve its railroad operations.

With these developments in line, Canadian National claims to be building the ‘premier railway’ of the ‘21st century and aims to serve its customers, shareholders, communities and all other stakeholders in a better manner.

On that note, let us glance at Canadian National’s financial performance.

Canadian National Railway (TSX: CNR) Q1 FY2022 financial results

Canadian National improved its revenue by five per cent or C$ 173 million to C$ 3.7 billion in Q1 2022 compared to the same quarter a year ago. Though operating profit declined by eight per cent year-over-year (YoY), Canadian National posted an increased adjusted operating profit of C$ 1.23 billion in the latest quarter, reflecting a YoY change of four per cent.

The railroad generated an increased free cash flow (FCF) of C$ 571 million in Q1 2022, relatively up from C$ 539 million in Q1 2021. The rail operator said its net profit decreased to C$ 818 million in the first three months of FY2022 compared to C$ 976 million a year earlier.

Now coming to its financial ratios, Canadian National said that its operating ratio (which expresses operating expenses as a percentage of revenues) increased to 66.9 per cent in the latest quarter compared to 62.5 per cent in Q1 2021.

Canadian National Railway (TSX: CNR)’s Q1 FY2022 financial results

Canadian National Railway’s stock performance

CNR stock delivered a return of over 12 per cent in 52 weeks. According to Refinitiv, CNR’s Relative Strength Index (RSI) was at a moderate level of 54.72 on June 28.

The railroad’s profitability, reflected by its return on equity (ROE), was almost 24 per cent. A debt-to-equity (D/E) ratio of 0.63 (below 1) can indicate that Canadian National majorly utilizes equity financing than debt, which could mean low solvency risk.

Bottomline

Besides improving railroad operations and network infrastructure, Canadian National also offers dividends to its shareholders every quarter (a dividend of C$ 0.733 is due on June 30). Long-term investors could consider Canadian National Railway as it is expanding its railway footprint.

Please note, the above content constitutes a very preliminary observation based on the industry, and is of limited scope without any in-depth fundamental valuation or technical analysis. Any interest in stocks or sectors should be thoroughly evaluated taking into consideration the associated risks.

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