How Canadian National Railway’s Debt Stacks Up to Its Peer Group



Net debt-to-EBITDA ratio

In this part of the series, we’ll assess the debt-paying abilities of Canadian National Railway (CNI) and its peers. The net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio measures a company’ ability to pay its debt. Net debt is often derived by subtracting the cash and equivalents from a company’s interest-bearing liabilities. The objective is to assess the extent of coverage of a company’s issued debt by its cash earnings.

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CNI and its peers

As you can see in the above graph, Union Pacific (UNP) has the lowest net debt-to-EBITDA ratio of 1.42x. It’s followed by Canadian National Railway (CNI) with a multiple of 1.61x. Genesee & Wyoming (GWR), a non-Class I railroad, has the highest net debt-to-EBITDA multiple of 4.27x in our peer group.

Genesee & Wyoming recently acquired two railroads in the United States. At the time of its Freightliner acquisition in early 2016, the company’s net debt-to-EBITDA multiple was around 3.7x. Its EBITDA was $147.4 million in the first quarter of 2017.

Canadian National Railway had cash and equivalents of $265.0 million Canadian at the end of the first quarter of 2017. For that same quarter, its total debt was $10.9 billion Canadian. Its quarterly EBITDA was $1.6 billion Canadian on March 31, 2017. CNI’s archrival Canadian Pacific (CP) had the second-highest net debt-to-EBITDA ratio of 2.7x in the peer group.

How is CNI positioned among its peers?

CNI’s better position among other major railroads has benefited the company so far in 2017. The current fundamentals of the railroad industry are on shaky ground. The freight volumes situation hasn’t dramatically improved so far. High interest expenses act as a huge burden on railroads under these circumstances, and less leveraged railroads such as Canadian National Railway stand to gain.

If you want to have indirect exposure to the transportation sector, you can consider investing in the Industrial Select Sector SPDR ETF (XLI). XLI holds 9.3% in major US railroads and 12.3% in prominent US airlines.

In the next part, we’ll see whether Wall Street analysts have changed their outlook for Canadian National Railway.


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