Delayed Toronto Stock Exchange - 04:16 2022-12-02 pm EST
172.04 CAD -0.36%

National Bank on Canadian Rail Companies -- Says "Recession Risk and Valuation Keep us Neutral"

09/22/2022 | 01:53pm
(MT Newswires) -- Notwithstanding an uncertain macroeconomic backdrop, the volume outlook for CN and CP in H2/22 has arguably improved supported by a significantly better Canadian grain crop. National Bank's Cameron Doerksen expects solid Q3 results from both railroads and a strong finish to 2022 but is remaining "somewhat cautious" on both stocks based on the following.

1. Recession risk growing.

The risk of a recession has grown in recent months and volume growth could be more at risk in 2023 as the housing market softens and the North American consumer becomes more strained. Canadian railroad stocks will likely outperform much of the broader transportation stock universe, but NBF sees the broader economic uncertainty as a check on higher share prices.

2. Valuations not that compelling. NBF's current consensus 2023 earnings forecasts, where the risk is arguably skewing to the downside, CN trades at 19.6x P/E and CP at 21.4x, both premiums to the U.S. peer average of 15.6x.

CN Rail - maintain Sector Perform; target to $173.00 from $166.00.

CP Rail - maintain Sector Perform; target to $105.00 from $98.00.

Price: 153.22, Change: -0.65, Percent Change: -0.42

MT Newswires 2022
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