CP and CN Rail: Despite 1Q Losses, Expect a Strong 2008

Despite harsh winter weather and related operational issues, Canaccord Adams analyst Tom Varesh said Monday he expects the country’s largest railways to make up for any resulting volume weakness in subsequent quarters when conditions improve.

Both Canadian National Railway Co. (CNI) and Canadian Pacific Railway Ltd. (CP) will report their first quarter earnings in two weeks, and Mr. Varesh said he is expecting CN to turn in earnings per share of C$0.60, down from C$0.63 last year. For CP, he is forecasting earnings of C$0.75 a share, down from C$0.78 last year.

He also expects the railways to make up for any “lost revenue” during the quarter in subsequent quarters.

Mr. Varesh maintained his “buy” rating on both stocks and said he expects full year 2008 fully diluted earnings per share of C$3.76 at CN and C$4.84 at CP.

In a note to clients he said:

Improved operating conditions and any rebound seen in the North American economy should act as catalysts in the coming quarters.