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Canadian National Railway (TSE:CNR)
TSX:CNR
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Canadian National Railway
(TSX:CNR)
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Rating:77Outperform
Price Target:
C$173.00
â–²(23.79% Upside)
Action:ReiteratedDate:03/02/26
The score is driven primarily by strong financial profitability and supportive trend/momentum signals. It is tempered by higher leverage and soft recent free-cash-flow growth, a valuation that is not cheap at ~20x earnings, and a cautious earnings outlook tied to flat volumes, tariff/trade uncertainty, and a planned near-term increase in leverage.
Positive Factors
Extensive North American Network
CNR's ~31,000-route-mile network and exposure across intermodal, grain, forestry, automotive and energy create durable barriers to entry and relevance to critical supply chains. This scale supports long-term contractual relationships, network density advantages and sustained pricing power versus new entrants.
Strong Profitability and Margins
Consistently high operating and net margins provide a structural cushion against cyclical volume swings and input cost inflation. Margin strength supports reinvestment in capacity, dividend growth and the ability to fund productivity programs that sustain returns on capital over the medium term.
Solid Cash Generation and Capital Discipline
Stable operating cash flow and positive free cash flow, combined with planned CapEx reduction, improve cash conversion and long-term flexibility. Demonstrated share repurchases and 30 years of dividend increases reflect disciplined capital allocation that can enhance shareholder returns while funding necessary infrastructure.
Negative Factors
Rising and Elevated Leverage
A deliberate near-term rise in net leverage to ~2.7x to accelerate buybacks raises structural balance-sheet sensitivity, reducing financial flexibility against rate shocks or volume downturns. Higher leverage limits capacity for inorganic investment or defensive responses in prolonged industry weakness.
Tariffs and Trade Uncertainty
Policy-driven tariffs and cross-border trade uncertainty represent a multi-year structural revenue and mix risk for a cross-border rail operator. A sustained >$350M hit constrains upside, pressures margins and can alter commodity flows, making volume and pricing visibility weaker across planning horizons.
Weak Free-Cash-Flow Growth
Although operating cash is strong, FCF at roughly half of net income and negative growth recently limits the firm’s ability to simultaneously fund capex, accelerate buybacks, reduce debt and raise dividends. Persistent FCF pressure reduces optionality during industry downturns or large capital projects.
Canadian National Railway (CNR) vs. iShares MSCI Canada ETF (EWC)
Market Cap
$85.44B
Dividend Yield2.62%
Average Volume (3M)2.27M
Price to Earnings (P/E)16.7
Beta (1Y)0.75
Revenue Growth0.23%
EPS Growth-13.22%
CountryCA
Employees24,911
SectorIndustrials
Sector Strength72
IndustryRailroads
Share Statistics
EPS (TTM)2.08
Shares Outstanding611,400,000
10 Day Avg. Volume2,646,338
30 Day Avg. Volume2,270,892
Financial Highlights & Ratios
PEG Ratio2.25
Price to Book (P/B)3.92
Price to Sales (P/S)4.89
P/FCF Ratio24.94
Enterprise Value/Market Cap1.24
Enterprise Value/Revenue6.11
Enterprise Value/Gross Profit13.61
Enterprise Value/Ebitda11.60
Forecast
1Y Price Target
$152.35Price Target Upside9.02% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering18
EPS Forecast (FY)7.88
Revenue Forecast (FY)$17.64B
Canadian National Railway Business Overview & Revenue Model
Company DescriptionCanadian National Railway Company, together with its subsidiaries, engages in the rail and related transportation business. The company's portfolio of goods includes petroleum and chemicals, grain and fertilizers, coal, metals and minerals, forest products, intermodal, and automotive products serving exporters, importers, retailers, farmers, and manufacturers. It operates a network of 19,500 route miles of track spanning Canada and the United States. The company also provides vessels and docks, transloading and distribution, automotive logistics, and freight forwarding and transportation management services. Canadian National Railway Company was incorporated in 1919 and is headquartered in Montreal, Canada.
How the Company Makes MoneyCNR generates revenue primarily through the transportation of freight across its extensive railway network. The company's revenue model is based on charging customers for the shipment of goods, which includes various freight categories such as intermodal containers, bulk commodities, and finished vehicles. Key revenue streams include charges for long-haul transportation, terminal services, and logistics solutions. Additionally, CNR benefits from long-term contracts with major shippers in sectors like agriculture and mining, which provide a stable income base. Strategic partnerships with logistics companies enhance its service offerings, allowing CNR to capture a broader market share and improve operational efficiency.
Canadian National Railway Earnings Call Summary
Earnings Call Date:Jan 30, 2026
(Q4-2025)
| % Change Since: |
Next Earnings Date:Apr 27, 2026
Earnings Call Sentiment Positive
The call communicated disciplined execution and measurable operational and financial improvements (EPS growth, operating ratio gains, record free cash flow, operational productivity and commercial wins in Grain and Intermodal). However, the business faces meaningful headwinds from tariffs & trade uncertainty (~$350M revenue impact), adverse commodity mix (forest products, metals), legal provisions, FX sensitivity, and near-term volume comparables that make 2026 guidance cautious. Management underscores confidence in long-term leverage from productivity and capacity investments and is taking deliberate capital and balance sheet actions (CapEx reduction, targeted buybacks) to enhance shareholder returns while navigating the uncertain macro/trade backdrop.Q4-2025 Updates
Positive Updates
Strong EPS and Earnings Performance
Q4 adjusted diluted EPS rose ~14% year-over-year; reported diluted EPS grew 12% in the quarter. Full-year adjusted diluted EPS was $7.63, up 7% versus 2024 and at the high end of guidance.
Material Operating Ratio Improvement
Q4 adjusted operating ratio improved to 60.1% (a ~250 basis point improvement year-over-year) and full-year adjusted operating ratio improved to 61.7% (120 basis points better than 2024), reflecting disciplined cost control and productivity gains.
Strong Free Cash Flow and Capital Discipline
Generated $3.3 billion of free cash flow in 2025, up 8% year-over-year. Management tightened capital spending through the year and set 2026 CapEx at $2.8 billion (a $500 million reduction versus 2025) to improve cash conversion.
Shareholder Returns and Balance Sheet Actions
Repurchased nearly 15 million shares in 2025 for roughly $2 billion; Board approved a new buyback program (up to 24 million shares Feb 2026–Feb 2027). Dividend increased by 3% (30th consecutive year of dividend growth). Management plans a temporary leverage increase to ~2.7x to opportunistically accelerate buybacks.
Operational Productivity and Safety Records
Achieved the best injury frequency ratio in company history. Key performance gains in Q4 include car velocity +2%, terminal dwell -1%, T&E productivity +14% versus prior-year quarter, T&E labor cost per GTM improved 6% year-to-date with GTMs up 1%, and locomotive productivity +5% in the quarter. Locomotive availability reached an all-time high of 92.5%.
Fuel Efficiency and Asset Optimization
Recorded a Q4 record in fuel efficiency (nearly +1% year-over-year in the quarter). Mechanical inventory reduced by $20 million (down ~14% year-over-year). Approximately 10% of locomotive fleet stored on average, contributing to improved availability and lower costs.
Commercial Wins: Grain and Intermodal Strength
Set an all-time annual record for Western Canadian Grain shipments and monthly records in Oct–Nov–Dec. Intermodal revenue growth in Q4: international +13% and domestic +6%. Natural gas liquids volumes rose ~9% in Petroleum & Chemicals.
Completed Capital Projects and Engineering Productivity
Completed all 8 committed 2025 capacity projects on time, delivering nearly $40 million of productivity gains from 2024 and reducing reliance on contractors by doing more work in-house.
Negative Updates
Tariffs and Trade Uncertainty
Tariffs, trade uncertainty and volatility negatively impacted 2025 revenues by more than $350 million. Management expects continued uncertainty tied to USMCA review and has assumed tariffs remain at current levels for 2026 planning.
Adverse Mix and Sector Weakness
Unfavorable mix at year-end driven by persistent weakness in forest products and metals & minerals (including lower iron ore shipments and frac sand weakness). Management expects mix headwinds to persist in 2026, weighing on margins.
Modest Revenue Growth
Revenues were up only ~2% year-over-year in the quarter, reflecting a mix of gains (Grain, Intermodal) offset by soft end markets and tariff-related losses.
Higher Other Expenses and Legal Provision
Other expenses rose ~27% in the quarter, primarily due to higher legal provisions including a nonrecurring $34 million accrual related to an unfavorable court ruling (management is appealing).
One-time Charges and Advisory Fees
Q4 included a $34 million pretax charge tied to the workforce reduction program and ~$15 million of adviser fees related to industry consolidation efforts; these are nonrecurring but lowered quarterly results.
FX and Tax Headwinds
Management neutralized FX for planning but noted sensitivity (~$0.05 EPS per penny of USD/CAD movement); at current spot FX this could represent about a $0.10 EPS headwind. Effective tax rate expected to increase to ~25–26% in 2026, adding pressure to EPS.
Near-term Volume and Timing Risk
Guidance assumes volume ton-miles flattish in 2026; Q1 is expected to be the toughest quarter on comparable basis with January volumes already weak. International intermodal is slow into Q2 and some customer ramp-ups are uncertain.
Temporary Increase in Leverage
Planned temporary increase in net leverage to ~2.7x to fund front-loaded buybacks introduces balance sheet risk (management intends to return to ~2.5x in 2027).
Company Guidance
CN offered directional 2026 guidance tied to volumes, forecasting revenue ton-miles and volumes to be flattish with 2025 and EPS to grow slightly ahead of volume growth; management expects free cash flow to increase off a 2025 base of $3.3 billion (+8%) while cutting CapEx to $2.8 billion (‑$500 million vs 2025) to improve cash conversion. They plan a deliberate, temporary step-up in leverage to roughly 2.7x in 2026 (returning to ~2.5x in 2027) to accelerate share repurchases after buying ~15 million shares for ~$2 billion in 2025 and authorizing up to 24 million more (Feb 4, 2026–Feb 3, 2027). Modeling assumes CAD/USD at $0.715 with sensitivity of ~ $0.05 EPS per $0.01 FX move (current spot implying ~ $0.10 EPS headwind); expected 2026 effective tax rate is 25–26% (2025: 24.7%). Management reiterated pricing to outpace rail cost inflation and continued productivity gains (though smaller than 2025), but flagged headwinds including unfavorable mix (forest products/metals), roughly $100M lower capital credits, a similar reduction in other income versus 2025, and the need to lap prior-year efficiency gains; Q4 adjusted OR was 60.1% and FY adjusted OR 61.7% (‑120 bps vs 2024).Canadian National Railway Financial Statement Overview
Summary
Strong profitability and earnings quality with high operating and net margins, plus solid operating cash generation. Offsets include rising leverage (debt-to-equity ~1.01 in 2024–2025) and weakening/negative free-cash-flow growth in recent years, which reduces financial flexibility.Income Statement
Canadian National Railway shows consistently strong profitability, with high operating and net margins across the period (2025 net margin ~27% and operating margin ~41%), supporting solid earnings quality for a railroad. Revenue has grown meaningfully since 2020, but recent top-line momentum is modest (2024 ~+1% and 2025 shows a sharp jump vs. 2024 per the provided data). A key watch-out is volatility in gross margin (notably lower in 2023 and 2025 versus 2024), suggesting cost or pricing swings that could pressure profitability if sustained.86
Very Positive
Balance Sheet
The balance sheet is supported by strong returns on shareholder capital (return on equity generally ~18%–28% over 2020–2025), indicating efficient profit generation. However, leverage has increased over time: debt-to-equity moved from ~0.56 (2021) to ~1.01 (2024–2025), with total debt rising materially, reducing financial flexibility versus earlier years. Overall asset growth is steady, but the higher debt load makes the company more sensitive to downturns and higher interest costs.74
Positive
Cash Flow
Operating cash generation is consistently solid (roughly $6.2B–$7.0B annually), and operating cash flow has comfortably covered net income each year (coverage above 1.3x). The weaker area is free cash flow: free cash flow remains positive but runs at roughly half of net income (~0.47–0.59x), and growth in free cash flow has been negative in most recent years (including 2024 and 2025), pointing to heavier investment needs and/or working-capital pressure that can limit cash available for buybacks, dividends, or debt reduction.70
Positive
| Breakdown | Dec 2025 | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 |
|---|---|---|---|---|---|
Income Statement | |||||
| Total Revenue | 17.30B | 17.05B | 16.83B | 17.11B | 14.48B |
| Gross Profit | 7.76B | 9.31B | 9.45B | 9.62B | 8.11B |
| EBITDA | 9.12B | 8.67B | 8.89B | 9.07B | 7.61B |
| Net Income | 4.72B | 4.45B | 5.63B | 5.12B | 4.90B |
Balance Sheet | |||||
| Total Assets | 58.55B | 57.07B | 52.67B | 50.66B | 48.54B |
| Cash, Cash Equivalents and Short-Term Investments | 363.00M | 389.00M | 475.00M | 328.00M | 838.00M |
| Total Debt | 21.84B | 21.37B | 18.89B | 15.89B | 12.91B |
| Total Liabilities | 36.99B | 36.02B | 32.55B | 29.28B | 25.79B |
| Stockholders Equity | 21.57B | 21.05B | 20.12B | 21.38B | 22.74B |
Cash Flow | |||||
| Free Cash Flow | 3.39B | 3.15B | 3.78B | 3.92B | 4.08B |
| Operating Cash Flow | 7.05B | 6.70B | 6.96B | 6.67B | 6.97B |
| Investing Cash Flow | -3.71B | -3.61B | -3.47B | -2.51B | -2.87B |
| Financing Cash Flow | -3.37B | -3.62B | -3.41B | -4.67B | -3.86B |
Canadian National Railway Technical Analysis
Neutral
139.75
Price Trends
141.21
Negative
136.98
Positive
134.86
Positive
Market Momentum
0.23
Positive
41.10
Neutral
21.38
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For TSE:CNR, the sentiment is Neutral. The current price of 139.75 is below the 20-day moving average (MA) of 147.54, below the 50-day MA of 141.21, and above the 200-day MA of 134.86, indicating a neutral trend. The MACD of 0.23 indicates Positive momentum. The RSI at 41.10 is Neutral, neither overbought nor oversold. The STOCH value of 21.38 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for TSE:CNR.
Canadian National Railway Peers Comparison
UnderperformOutperform
Sector (63)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
77 Outperform | $85.44B | 16.73 | 21.95% | 2.62% | 0.23% | -13.22% | |
71 Outperform | C$11.92B | 19.57 | 19.66% | 1.58% | 1.32% | 24.27% | |
70 Outperform | $99.15B | 22.36 | 8.90% | 0.82% | 4.02% | 21.39% | |
66 Neutral | C$710.29M | 10.32 | 10.91% | 5.09% | 3.71% | -12.70% | |
63 Neutral | $10.79B | 15.43 | 7.44% | 2.01% | 2.89% | -14.66% | |
60 Neutral | C$11.35B | 27.16 | 11.65% | 1.75% | -0.25% | -28.71% |
* Industrials Sector Average
TSE:CNR
Canadian National Railway
139.75
3.40
2.50%
TSE:CP
Canadian Pacific Kansas City
110.44
4.71
4.45%
TSE:TFII
TFI International
138.20
21.02
17.94%
TSE:FTT
Finning International
91.10
51.19
128.26%
TSE:WJX
Wajax Corporation
32.51
15.68
93.22%
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.