Canadian National Railway Company CNI has been thriving on the back of impressive freight demand. Let’s delve deeper into the scenario.

Canadian National performed well in the second quarter of 2018 buoyed by robust freight demand. The company reported better-than- expected earnings and revenues. Both metrics also improved year over year. While freight revenues increased 10% in the period, growth was witnessed across most key divisions of the company. Overall, carloads rose 6%.

Moreover, the company raised its earnings per share outlook for 2018 owing to an impressive second-quarter performance as well as increasing demand.. Its adjusted earnings per share are now expected in the range of C$5.30-C$5.45 for 2018. The past guidance was within C$5.10-C$5.25.

The company’s decision to raise its capital program to C$3.5 billion from the previous C$3.4 billion is also impressive. It plans to invest an additional amount in buying new rail cars. The capital program will also focus on the core capacity projects to meet growing freight demand and investments pertaining to infrastructural maintenance, thus enhancing safety and efficiency of network in the process. Canadian National also intends to invest approximately C$400 million of the total in new track infrastructure, mainly in Western Canada to expand capacity and boost resiliency.

The company’s efforts to reward shareholders through dividend payments and share buybacks also raise optimism. In January 2018 when the company’s board of directors approved a 10% increase in its quarterly cash dividend to C$0.45 per share (annualized C$1.80). With respect to buybacks, the company repurchased more than 13 million shares for $1.3 billion since October 2017.

In light of these positives, we believe investors should retain Canadian National stock for now. The stock’s Zacks Rank #3 (Hold) seems to suggest the same.

Key Picks

Some better-ranked stocks in the broader Transportation sector are SkyWest, Inc. SKYW, GATX Corporation GATX and Trinity Industries, Inc. TRN. While SkyWest and Trinity sport a Zacks Rank #1 (Strong Buy), GATX carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of SkyWest, GATX and Trinity have surged more than 76%, 38% and 30%, respectively, in a year.

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