10.21
CN reported Q3/09 FD EPS from continuing operations of $0.94 versus our
estimate of $0.87 and consensus of $0.89.
CN’s ability to continue to drive down costs
resulted in better-than-expected earnings. CN’s operating ratio was 62.7%.
While CN continues to see improvement in its operating ratio, given the
high fixed cost nature of rail operations, a pick up in volumes should result
in a further improvement in operating metrics. CN noted it could easily
handle another 5%-10% in volumes without additional headcount.
We are proponents of the rails as a vehicle to play the economic recovery.
CN is our top pick given:
1) its proven track record with the EJ&E acquisition
and Harrison Yard improvements expected to continue to drive down costs;
2) CN is more levered to the economy;
3) attractive valuation.
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