Canadian National Railway (CNR)

By January 28, 2016 No Comments

In today’s content analysis, we take a look at the Q4 results for Canadian National Railway (CNR), which have just been updated on Stockpointer.  Download

As the majority of you already know, the stock has been going through a difficult period for almost 12 months. However, on a fundamental level the company’s performance has never really slowed down, even accelerating since the end of 2013. In fact, the drop in the stock’s price in the last couple of months is totally justifiable. The market got a little too excited in 2014, transforming the P/IV ratio from 1.1 in March 2014 to 1.39 by March 2015, reflecting a considerable overvaluation. Since March 2015, the price of the stock has decreased from $84.82 to $71.74 (as of January 27th), while at the same time the intrinsic value has continued to increase in a very stable and linear fashion and reaching, thanks to the Q4 results, $68.11. The P/IV ratio is therefore now at a much more conservative level of 1.05. This ratio is even lower than its 5-year average of 1.16.

The future growth value (FGV) leads us towards the same conclusion. The market had granted an elevated premium to CNR’s stock in 2014 for high expected growth, and this premium represented almost 40% of the total market value in December 2014. Nevertheless, the premium has substantially diminished and has, as of January 27th, reached around 15%.

CNR’s EVA has constantly increased since the end of 2013 and its growth rate has even accelerated during the last 6 quarters. Companies to offer an EVA growth that is this stable are not easy to find.

Overall, CNR has succeeded in growing its revenue, operating profit, earnings per share and dividends each year and for the last 5 years. It has equally managed to buy back shares every year as well as maintain positive free cash flows, which are today at their highest level in 5 years.