Canadian National Railway (TSX:CNR) operates in rail and related transportation business. The company transports freight serving exporters, importers, retailers, farmers, and manufacturers. It operates a network of approximately 20,000 route miles of track spanning the whole of North America connecting the Atlantic, the Pacific, and the Gulf of Mexico.
The company has rail yards in Vancouver, Prince Rupert (British Columbia), Montreal, Halifax, New Orleans, and Mobile (Alabama), as well as the metropolitan areas of Toronto, Edmonton, Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth (Minnesota)/Superior (Wisconsin), and Jackson (Mississippi) with connections to various points in North America.
The company was founded in 1919 and the corporate headquarters is located in Montreal, Canada.
The company is fairly valued with a price-to-earnings ratio of 20.28, a price to book ratio of 4.85 and market capitalization of 87.82 billion.
Leverage is low at Canadian National, as is evidenced by a debt to equity ratio of just 0.77. The company has excellent performance metrics with an operating margin of 40.76% and a return on equity of 24.85%.
Canadian National is a true backbone of the North American economy; the company handles over $250 billion worth of goods annually and carries over 300 million tons of cargo, serving exporters, importers, retailers, farmers and manufacturers.
The company’s freight revenues are derived from seven commodity groups representing a diversified and balanced portfolio of goods transported between a broad range of origins and destinations.
This product and geographic diversity better positions the company to face economic headwinds and enhances the potential for growth opportunities.
Last year, no individual commodity group accounted for more than 25% of total revenues. From a revenue diversity standpoint, 15% of revenues relate to U.S. domestic traffic, 34% transborder traffic, 17% Canadian domestic traffic and 34% overseas traffic.
In the most recent quarter, revenues increased by 4%, or $142 million, to $3.83 billion and earnings per share (EPS) increased by 8%. The increase was mainly due to inflation rate increases and higher intermodal revenues.
The company reported a record operating ratio at 57.9%, an improvement of 1.6 points from last quarter. Operating income increased by 8%, or $121 million, to $1.6 billion.
Operating expenses for the third quarter increased by 1% to $2.2 billion, which was mainly driven by increased purchased services and material expense, as well as higher depreciation and amortization expense; partly offset by lower fuel costs and record fuel productivity.
The company has a very strong balance sheet with debt to earnings before interest, tax, depreciation and amortization ratio of less than 2.
Rail freight revenue, measuring the relative weight and distance of freight transported by Canadian National, declined by 1% from the year-earlier period. Freight revenue per ton mile increased by 6% year over year, which was mainly driven by inflation rate increases and higher intermodal revenues.
The largest shareholder of the company’s stock is billionaire investor, Bill Gates, who sees huge potential in the company. Warren Buffett’s company Berkshire Hathaway owns the Burlington Northern Railroad and has been bullish on the railroad sector for several years.
Canadian National is one of North America’s most efficient railroads with the lowest operating ratio and has the potential to significantly outperform the TSX for decades ahead.
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Fool contributor Nikhil Kumar owns shares in BERKSHIRE HATHAWAY CL. B. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Canadian National Railway. The Motley Fool recommends Canadian National Railway and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short January 2020 $220 calls on Berkshire Hathaway (B shares). Canadian National Railway is a recommendation of Stock Advisor Canada. Berkshire Hathaway is a recommendation of Stock Advisor Canada.
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