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Canadian National Gains From Grain Movement Amid Low Volumes

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We recently issued an updated report on Canadian National Railway Company (CNI - Free Report) .

Canadian National’s overall volumes declined 11% in the first half of 2020 due to double-digit declines in key segments like intermodal and automotive sectors. The company’s third-quarter performance is also likely to reflect substantial volume softness as well.

The company’s first-half 2020 revenues declined 10% year over year primarily due to COVID-19-induced network disruptions. Freight revenues in the Metals and Minerals, Forest Products and Coal segments declined 18%, 12% and 17%, respectively, in the first six months of 2020. Moreover, the same plunged 43% in the Automotive segment. Revenues in the Intermodal segment dropped 6%. Continuous below-par freight revenues in the key segments might hurt the stock badly.

Operating ratio (operating expenses as a % of revenues) deteriorated to 70.4% in first-half 2020 from 63.2% in first-half 2019, mainly due to high operating expenses as revenues are weak.

Meanwhile, the company moved 15 million metric tonnes (MMT) of Canadian grain in the first half of the year, thereby bettering its previous record of 13.9 MMT.  Also, Canadian National set a record by moving 8.15MMT of Canadian grain during second-quarter 2020. This is likely to drive the company’s top line.

Zacks Rank & Stocks to Consider

Canadian National currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Zacks Transportation sector are Knight-Swift Transportation Holdings Inc. (KNX - Free Report) , United Parcel Service, Inc. (UPS - Free Report) and Werner Enterprises, Inc. (WERN - Free Report) . Knight-Swift and United Parcel stocks sport a Zacks Rank # 1 (Strong Buy), while Werner carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Knight-Swift, United Parcel and Werner is pegged at 15%, 7.7% and 8.5%, respectively.

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