Canadian National Railway (USA) (NYSE:CNI) — CNI operates Canada’s largest railroad, and with links to the U.S and Mexico, it operates over 20,000 route miles.
Standard & Poor’s earnings-per-share forecast for 2016 is $3.39, up 6% from an operating EPS of $3.20 in 2015. Earnings for this well-managed company improved despite a lower Canadian dollar vs. the U.S. dollar and declining volume, which reflects weak coal volumes and lower crude oil volumes.
However, crude oil prices appear to be stabilizing in the $45 to $55 per barrel range and China’s economy, which imports much of Canada’s coal, could also be improving. Although S&P has trimmed their earnings forecast for 2017 to $3.67 from $3.96, the cut in estimate was done in July under more strenuous pricing conditions. Even though the currency’s exchange rate is unchanged, costs have been better, and CNI lowered its operating ratio, a remarkable achievement.
S&P forecasts that margins will continue to improve from increased traffic flow in Chicago and longer trains with new locomotives which run more efficiently. S&P concludes that the recent drop in price puts CNI at a distinctly lower price-to-earnings ratio than warranted by the market, thus it retains its four-star buy at $65 (U.S. dollars) with a target price of $75.
For five months, CNI has maintained a bull channel with the stock trading above and below its 50-day moving average line. It produced a Golden Cross, a bullish long-term buy signal, in July at under $60 and traded to a high of $68 in October. But in late October it broke the support line of its bull channel and is currently testing the 200-day moving average at $61.11.
MACD is very oversold, and after a spike of selling, volume appears to be stabilizing. Therefore try to purchase CNI at $60 with a price target of $70 for a proposed gain of over 16% by the end of the first quarter of 2017.