Stock Analysis & Ideas

Canadian National Railway: Another Impressive Quarter

Last week, Canadian National Railway (CNI) released its Fiscal 2021 Q4 results. Since CN Rail is the largest railway in Canada, it is often used as a bellwether of the Canadian economy. It is one of the most widely held stocks in the country, so it is an event that is closely watched.

There is plenty to digest following earnings but suffice to say, I remain bullish on the long-term prospects of the railway.

While the company is headquartered in Canada, CN Rail is a world-class company that owns and operates the only transcontinental railway in North America. Its rail network spans 19,600 miles and connects three coasts: the Atlantic, the Pacific, and the Gulf of Mexico.

Strong Q4 Results

CN Rail posted very strong Q4 results. Earnings of C$1.71 per share beat by C$0.18, and revenue of C$3.75 billion topped expectations by C$90 million.

Importantly, the company’s adjusted operating ratio, which is a key efficiency metric in the industry, rose to 57.9%. This is a 3.5-point improvement and will help alleviate some of the company’s critics. The company’s declining operating ratio was the source of much controversy when one of the company’s largest shareholders launched a campaign against the company. More on that later.

Thanks to improved efficiency, CN rail also posted record annual free cash flow of C$3.296 billion in Fiscal 2021, which is a $69 million uptick from Fiscal 2020. Adjusted return on invested capital (ROIC) was also strong as it rose by 70 basis points to 14.1%.

Overall, it was a very strong quarter for the company.

Dividend Increase

Thanks to strong cash flows, CN Rail also announced a 19.1% increase to the company’s quarterly dividend. The new quarterly dividend of C$0.7325 per share reflects an C$0.1175 per share boost and is payable March 31, 2022, for shareholders of record on March 10, 2022.

Barring an unforeseen catastrophic event, the raise will effectively raise the company’s dividend growth streak to 27 years. This is tied for the 10th longest streak in Canada.

The company also announced it was renewing its normal course issuer bid to purchase up to 42 million shares for cancellation. This represents approximately 6.8% of the current shares outstanding not held by insiders.

It is also worth noting that the 19% raise is higher than the company’s historical average. Over the past three and five-year periods, the company averaged dividend growth in the low teens.

The higher raise is likely a reflection of the company’s strong Fiscal 2022 outlook. CN Rail expects to invest approximately 17% of revenue into its capital program and has a targeted operating ratio and ROIC of 57% and 15%, respectively. This is expected to lead to 20% adjusted EPS growth and, once again, lead to record free cash flow in the $4.0 billion range.

New President and CEO

Circling back to the company’s very public tussle with CIFF Capital and TCI, CN Rail successfully amended this relationship. The company appointed Tracy Robinson as President and CEO, a seasoned exec from TC Energy (TRP) who spent nearly three decades at Canadian Pacific Rail (CP).

Robinson also happens to be the preferred choice for CIFF Capital and TCI, who also agreed with CN Rail to appoint two independent Directors to the Board prior to the 2022 AGM. As a result, TCI agreed to withdraw its request for a Special Meeting of the shareholders and is anticipated to support the election of all CN Rail Director nominees.

While it may not seem like much, the brokered peace between CN Rail and these major shareholders will remove an overhang that has plagued them for the bulk of the past year.

Wall Street’s Take

Turning to Wall Street, CN Rail earns a Hold analyst consensus based on four Buys, 14 Holds, and one Sell rating.

The average Canadian National Railway price target of $131.45 puts the upside potential at 7.5%.


Overall, there were plenty of positives emerging from the year-end report. The company is on track to deliver solid growth in Fiscal 2022. It raised its dividend and resolved one of the major headwinds from 2021. Full steam ahead for CN Rail.

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