Canadian National Railway (CNI) has a consensus rating of 3.2 with a “hold” recommendation. Of the 28 analysts covering the stock, five of them, or 18%, have given CNI a “buy” recommendation. Twenty-one analysts, or 75%, advise investors to “hold” the common stock of Canada’s largest freight rail. Two analysts, or 7%, have a “sell” recommendation for the company.
Analysts’ target prices
Wall Street analysts have a 12-month consensus target price of $62.50 for CNI. The last closing price on July 27, 2016, was $63.65. This translates to a return potential of -1.8%. However, the last 12-month return on the company’s stock was 7.1%.
Among the notable research firms, Fadi Chamoun of BMO Capital Markets has a higher price target of $68.12 for CNI stock with an “outperform” recommendation. On a lower target price side, Brandon Oglenski of Barclays has a target price of $55 with an “equal weight” recommendation.
Are analysts saying ‘hold’ for the railroad industry?
It’s worth noting that in May 2016, prominent credit-rating agency Moody’s downgraded the rail sector outlook from “stable” to “negative.” Now, all the major Class I railroads such as Norfolk Southern (NSC), CSX (CSX), Union Pacific (UNP), Canadian Pacific (CP), and Kansas City Southern (KSU) are focusing on cost rather than revenue.
With declining volumes, chances of a higher pricing have diminished. It’s important to mention that overall pricing of 4%–4.5% has declined to 2%–2.5%. Railroads are finding it tough to adjust resources with sharp reductions in volumes.
However, every cloud has a silver lining. With regard to Canadian National, analysts have taken into consideration the prospective rise in US and Canadian grain volumes. With the new supply chain agreements with Alabama State Port Authority, the Port of New Orleans, and the Port of Mobile, CNI’s intermodal prospects are better in the peer group. Buoyant automotive and forest products will also drive the company’s volumes in the upcoming quarters.
Investors looking for a pure play in US-specific rail stocks can invest in the Vanguard Dividend Appreciation ETF (VIG). All the US-originated Class I railroads make up the portfolio holdings of VIG.