CN and CP Railway Earnings Expected to Drop Over Short-Term

Harsh winter weather, a soaring loonie, and high fuel prices are expected to drag on the earnings of the country’s largest railways in the first part of this year, according to David Newman, National Bank Financial analyst.

He has reduced his short-term earnings forecast for both Canadian National Railway Co. (CNI) and Canadian Pacific Railway Ltd. (CP) accordingly.

Mr. Newman said he now expects CN to turn in C$0.60 earnings per share in the first quarter, down from his previous estimate of C$0.67, and the Street's consensus of C$0.71. He notes that CN turned in a C$0.63 earnings per share for the same period last year, which included a C$0.07 hit from a strike by 2,800 of its yard workers and conductors.

He did, however, maintain his “outperform” rating on the stock, although his price target dropped to C$54 a share from C$55.

For CP, Mr. Newman reduced his earnings estimate to C$0.65 a share, down from his previous estimate of C$0.83, and the Street's estimates of C$0.85 a share. He noted that yields for CP’s coal shipments from the Elk Valley will likely be under pressure as coal rates dropped by up to 9% last year.

In addition, he said the recently announced grain revenue caps hit Canada’s No. 2 railway harder than expected.

He maintained his “sector perform” rating on the stock, but dropped his price target to C$67 from C$69 a share.

“We continue to like the long-term fundamental rail story,” he added.

Comments

[onelittlesa...:]

CP Rail causes environmental damage and destruction. Important Salmon Habitat is sacrificed for the short-term goal of CP rail profits. How long will it go on? As an investment, I rate CP Rail as a zero based on their irresponsible management, incompetent employees, and myopic approach to the future. Negligent Corporations should be fined to the maximum allowable amount under enviromental and fisheries laws. Google "CP Rail Killer Culvert" and learn about a CP Rail worksite and toxic dumpsite that jeopardizes a small community in the pristine Fraser Valley.

2008 Mar 18 01:37 PM