Blackmont Capital Expects Eroded Earnings For Canada's Railways

A poor Canadian harvest, a deteriorating economic outlook in the U.S., higher than expected fuel costs and a strong Canadian dollar are expected to erode the earnings of Canada’s two largest railways, Canadian National Railway Co. (CNI) and Canadian Pacific Railway Ltd. (CP), according to Blackmont Capital analyst Avi Dalfen.

CP, however, has sustained its intermodal growth and increased its coal shipments so far this year, he said. Canada’s No. 2 railway also enjoys has a relatively low exposure to the U.S. economy, which will help it weather the downturn.

Nevertheless, due to the other headwinds, Mr. Dalfen lowered his earnings estimate for CP by 19¢ a share this year and 34¢ a share in 2008 to $3.99 and $4.35 respectively. His new target price for CP is C$78.50.

Likewise, Mr. Dalfen lowered his estimated earnings per share for its larger domestic rival, CN, by 20¢ a share this year and 47¢ share in 2008 to $3.33 and $3.76 respectively. His new target price for CN is C$59.75 down from his previous estimate of $63.