Blackmont Capital Expects Eroded Earnings For Canada's Railways

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Includes: CNI, CP
by: FP Trading Desk

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. (NYSE:CNI) and Canadian Pacific Railway Ltd. (NYSE: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.