Canadian National Railway (NYSE:CNI)--Canada's largest rail transport company--reported earnings of C$1.03/share that beat analyst expectations by C$0.04/share. The company grew its EPS by 21%, its earnings by 18% and its revenues by 17%. These are all impressive figures on the surface.
The revenue growth rate is significantly stronger than my expectations of 10% but we need to consider that the CAD has weakened by about 5% during that time frame, meaning that in USD terms the company grew revenues by about 12%. This is still strong, but when we apply the currency conversion to earnings we get a different takeaway. Earnings grew 13% in USD terms. Now this is impressive but it falls well short of the company's historic 20% growth rate.
With this in mind I want to use the more conservative of the two price targets that I provided in my June article, or $70/share (split adjusted) as opposed to the more aggressive $87.5/share (split adjusted) target. Given the growth we have seen in the past year this $70/share figure should be closer to $80, although it is clear that most of the upside is behind us with shares trading at $68.5/share, and I would not be adding shares at the current valuation. Investors should be happy with the 37% increase that we have seen in the past year and realize that while this is a solid long-term investment that the market has come to recognize this. Shares trade at over 20 times earnings and the company's dividend is just 1.4%. The stock is worth reconsidering on a pullback but for now I would rather buy shares in one of the less expensive railroad stocks.
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