Valuation Scorecard: Stock Rating C-Neutral (3/21/24)-Canadian National Railway Co (CNI).

As reflected at the current price of $130, what future Canadian National Railway operating performance is the market anticipating? To achieve average annual stock market performance of 9.0% over the next 6 years, Canadian National Railway shares will need to reach $218. Upper quartile performance will require a $256 Canadian National Railway stock price by 2029.

Executive Summary

• Key Canadian National Railway characteristics: high expected growth, stability, high profitability, and above average financial strength. A big positive influence on Canadian National Railway’s valuation is its superior Growth.
• Low valuation, above market shareholder returns. Current valuation levels are below average relative to the Canadian National Railway Peer Group. Recent market returns have outperformed the Canadian National Railway Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Canadian National Railway shares should reach a level of $261 by 2029 — an 14.2% per year total shareholder return. A 2029 stock price of $218 would reflect median performance and a price of $256 would be required to reach upper quartile performance.
• Growth has been Canadian National Railway’s biggest valuation strength. Historical growth has been very high relative to the Canadian National Railway Peer Group and forecasted growth is relatively very high. Equity Growth, Revenue Growth, and Asset Growth have been superior. These factors have buoyed market perceptions of Canadian National Railway. Canadian National Railway’s historical income statement growth has been in line with balance sheet growth. Revenue growth has paralleled asset growth; earnings growth has paralleled equity growth and return on equity has been stable. Canadian National Railway’s consensus growth expectations are lower than historical growth.
• Pretax Margin is group leading. This factor has strengthened market perceptions of Canadian National Railway. The company has normal cash needs.
• Canadian National Railway’s risk profile is neutral. Overall variability has been very high with very high revenue variability, relatively low E.P.S. variability, and relatively low stock price volatility. Financial Strength is only average and earnings’ expectations are only average. The debt/capital ratio has risen very significantly.

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