Canadian National Railway Co. is benefitting from a “very strong” operating performance in the middle of an inadequate volume environment, but National Bank has downgraded the stock following a 15 percent run-up from its January lows.
“Although we feel CN should be a core holding for long-term investors, we’re lowering our rating to Sector Perform from Outperform according to valuation,” analyst Cameron Doerksen wrote inside a note to clients.
Despite the downgrade, Doerksen raised his price target for CN to $78 from $77, slightly below the $80 range it had been trading at Tuesday.
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The stock has become trading at 17.4x current-year earnings, that is consistent with its five-year average.
If the stock pulls to the low $70 range, Doerksen said he’d suggest buying.
The bank also increased its target price on Canadian Pacific Railway Ltd. to $186 from $182 and maintained its Outperform rating, pointing out the stock is trading for a cheap price to CN despite stronger projected earnings growth this year.
Overall, National Bank expects the Canadian railroads to report “flattish” full-year revenue as strength in intermodal and forest products volume is offset by weakness in metallurgical coal, potash and grain.
