We've been asking ourselves recently if the market has placed a fair valuation on Canadian National Railway. Let's dive into some of the fundamental values of this Large-Cap Industrials company to determine if there might be an opportunity here for value-minded investors.
a Very Low P/E Ratio but Trading Above Its Fair Price:
Canadian National Railway Company, together with its subsidiaries, engages in the rail, intermodal, trucking, and marine transportation and logistics business in Canada and the United States. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 25.4 and an average price to book (P/B) ratio of 3.23. In contrast, Canadian National Railway has a trailing 12 month P/E ratio of 19.0 and a P/B ratio of 3.75.
Canadian National Railway's PEG ratio is 3.38, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
EPS Trend Sustained Primarily by Reducing the Number of Shares Outstanding:
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $12,611 | $12,037 | $13,041 | $14,321 | $14,917 | $13,819 |
| Operating Margins | 42% | 44% | 43% | 38% | 37% | 35% |
| Net Margins | 28% | 30% | 42% | 30% | 28% | 26% |
| Net Income (M) | $3,538 | $3,640 | $5,484 | $4,328 | $4,216 | $3,562 |
| Net Interest Expense (M) | $439 | $480 | $481 | $489 | $538 | $554 |
| Depreciation & Amort. (M) | $1,158 | $1,225 | $1,281 | $1,327 | $1,559 | $1,583 |
| Diluted Shares (M) | 805 | 779 | 757 | 738 | 723 | 713 |
| Earnings Per Share | $4.39 | $4.67 | $7.24 | $5.87 | $5.83 | $5.0 |
| EPS Growth | n/a | 6.38% | 55.03% | -18.92% | -0.68% | -14.24% |
| Free Cash Flow (M) | $2,434 | $2,507 | $2,843 | $2,387 | $2,058 | $3,302 |
| CAPEX (M) | $2,706 | $2,695 | $2,673 | $3,531 | $3,865 | $2,863 |
| Total Debt (M) | $8,985 | $9,448 | $10,670 | $12,540 | $13,662 | $12,832 |
| Net Debt / EBITDA | 1.37 | 1.42 | 1.55 | 1.8 | 1.9 | 1.93 |
| Current Ratio | 0.72 | 0.7 | 0.55 | 0.78 | 0.66 | 0.95 |
