Stock Analysis & Ideas

Expert Analyst Jason Seidl Says Canadian Rail Stocks Will Recover; What About CP and CNR?

Story Highlights

Our “Expert Analyst” believes that the Canadian rail sector is poised for volume recovery in the second half of the year, boosted by higher grain output and coal production. Let’s look at his views on two of Canada’s leading railway stocks.

In today’s “Expert Spotlight,” we will look at Jason Seidl, MD of Industrials-Airfreight & Surface Transportation at renowned research firm, Cowen & Co. He is bullish about CP stock and moderately optimistic about CNR stock.

According to Seidl’s current view on the Canadian rail sector, companies are commanding a pricing premium, which is boosting their earnings. However, carload volumes continue to be suppressed due to the Canadian grain challenges and lower coal output. Nonetheless, Seidl believes the scenario will change in the second half of the year, boosting the grain recovery and thereby the volumes for the carriers.

Despite the inflationary environment, especially the rising cost of fuel, Canadian rail stocks have been able to outperform expectations in the second quarter. With this background in mind, let us look at our expert analyst’s views on two Canadian rail stocks.

Canadian Pacific Railway (NYSE: CP) (TSE: CP)

Canadian Pacific provides rail services in Canada and the U.S., offering intermodal transportation and bulk transport of commodities, merchandise freight, and intermodal traffic. CP stock has gained 8.6% so far this year.

Last week, CP reported better-than-expected second-quarter results. Adjusted earnings of C$0.95 per share beat the consensus of C$0.92 per share. Plus, revenue of C$2.2 billion (7.3% growth year-over-year) beat the consensus by C$10 million.

Commenting on the results, Seidl said, “CP’s earnings came in above expectations as strong pricing offset volume challenges. Management struck an optimistic note on the back half and 2023 volume growth as Canadian grain production recovers.”

The five-star analyst raised the price target on CP to $83 (7% upside potential) from $82 while maintaining a Buy rating.

Meanwhile, the Street is cautiously optimistic about CP stock, with a Moderate Buy consensus rating based on eight Buys and four Holds. The average Canadian Pacific Railway price target of $80.95 implies 4.3% upside potential to current levels.

Notably, Seidl has had consistent Buy recommendations on CP stock and enjoys a success rate of 89% while generating an average profit per share of 20.13%.

Canadian National Railway (NYSE: CNI) (TSE: CNR)

Canada-based Canadian National Railway Co. offers transportation services including rail, intermodal, trucking, supply chain services, business development, and maps and network. CNI stock has gained 2.9% so far this year.

On July 26, CNI reported robust second-quarter results. Adjusted earnings of C$1.93 per share exceeded the consensus by C$0.17 per share. Similarly, revenue of C$4.34 billion (20.6% growth year-over-year) outpaced estimates by C$250 million.

Seidl reiterated a Hold rating on CNI stock but lifted the price target to $128 (3% upside potential) from $126.

Seidl noted, “We were encouraged by management’s assurance that no demand side volume slowdown has been observed and capacity remains booked through the fall.” Moreover, CNI’s partnership with PSA Halifax “could help future intermodal volume growth if successful,” Seidl added.

With five Buys and 14 Holds, CNI stock has a Moderate Buy consensus rating. The average Canadian National Railway price target of $128.53 implies 3.4% upside potential to current levels.

Although Seidl had a bullish stance on CNI stock up to January 2021, he has since downgraded the stock to a Hold and has since maintained his stance. Remarkably, Seidl boasts a success rate of 89% on CNI while generating an average profit per share of 11.56%.

Ending Thoughts

According to TipRanks’ Star Ranking System, Seidl ranks #4 among all 7,966 analysts tracked on TipRanks and #9 among 21,077 overall experts in the TipRanks universe.

Remarkably, Seidl has had a success rate of 73% with an average return of 26% over the past year. Moreover, during the same period, his calls have generated an alpha of 12.90% and 15.80% over the S&P 500 (SPX) and the benchmark, respectively.

Going by Seidl’s expertise in the transportation sector and his impressive performance, investors may choose to follow his investment choices.  


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