Canadian National Railway Co. is benefitting within the “very strong” operating performance in the middle of an inadequate volume environment, but National Bank has downgraded the stock carrying out a Fifteen percent run-up within the January lows.
“Although we’re feeling CN needs to be a core holding for long-term investors, we’re lowering our rating to Sector Perform from Outperform based on valuation,” analyst Cameron Doerksen wrote within the note to clients.
Despite the downgrade, Doerksen raised his price target for CN to $78 from $77, slightly underneath 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’s consistent with its five-year average.
If the stock pulls to the reduced $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, mentioning the stock is trading for much less to CN despite stronger projected earnings growth this season.
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.
