Watch: Canadian National, Alphabet, and Amazon

On the eve of an economic slowdown, Canadian National unveiled a record third quarter. (Photo: The Canadian Press)

What to do with titles from Canadian National, Alphabet and Amazon? Here are some recommendations from analysts likely to move prices soon. Note: the author may have a totally different opinion from that expressed.

Canadian National (CNR, $161.75): record quarter and upward forecasts, but the title is expensive

On the eve of an economic slowdown, Canadian National announced a record third quarter and raised its annual forecast. “The railway is showing its resilience as so many other companies lower their outlook,” said Scotiabank’s Konark Gupta.

Net income jumped 40% to $2.13 per share, 4% above expectations and 6% above consensus thanks to network performance. Freight revenue, or freight revenue by revenue-revenue-tons which measures the ton content of carloads by the distance traveled in miles, jumped 22%.

CN suffered the effects of a labor dispute in the United States and a strike at the Westshore coal terminal in Canada, but also benefited from the exchange rate, an improvement in the solvency ratio of its retirement, the fuel surcharge and the effect of share buybacks, the analyst said. The fuel surcharge alone would have added 15% to revenue, accounting for the majority of the overrun from his forecast, he estimates.

It should also be remembered that a year earlier, forest fires and a loss on an investment had weakened the results, adds Konark Gupta.

Although the operating ratio of 57.2% missed RBC’s target of 56.7%, this efficiency measure, which expresses expenses as a percentage of revenue, is the best since 2016, excluding the charge. accounted for wages due according to the new negotiated working conditions.

The fourth quarter also promises to be solid thanks to the record harvest of cereals and the transport of fertilizers, coal and vehicles. “Barges stuck in Mississippi could even give CN a better fourth quarter than expected barring any weather surprises,” the analyst said.

For 2022, CN is now betting on a 25% increase in earnings to $7.45 per share, instead of the previously expected 15 to 20% increase. Its free cash flow will also be above previous targets, at $4.2 billion instead of the previous range of $3.7 to $4 billion.

“CN is focused on the performance and operation of its network, adjusting its rates to inflation and improving productivity. Although the demand for intermodal transport of consumer products, chemicals and refined fuel is weakening, that for cereals, coal and fertilizers should compensate,” predicts Konark Gupta.

Despite this solid picture, the analyst says he is playing it safe for 2023 due to the high valuation of Canadian National’s title at a time when the economic situation is deteriorating.

It raises its target price from $156 to $159 to adjust to new forecasts, but does not recommend buying the stock which is trading at a multiple of 19.8 times forecast earnings in 2023, 21% more than the S&P 500 Index valuation and 27% higher than the US Railroad valuation. Historically, CN is 10% more expensively valued than its American peers.

Canadian National shares exceeded the target price at the opening on October 26th.

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