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Canadian National Railway (CNI) is one of the largest operators in the rail industry. It boasts an approximately 20,000-mile North American rail network that connects the Atlantic, Pacific, and Gulf of Mexico coasts, notes John Eade, an analyst with Argus Research, a leading independent Wall Street research firm.

CNI has a new CEO, Tracy Robinson, effective Feb. 28, 2022. New to the company, Ms. Robinson worked for more than 30 years in the industry at Canadian Pacific (CP).

Prior to the pandemic, the company had been benefiting from a recovery in several key markets, including petroleum and grain. Though the virus had a modest negative impact on results in 2020, earnings bounced back in 2021 and are poised for strong growth in 2022.

Based on current volume and margin trends as well as management’s guidance, we are trimming our 2022 adjusted U.S. dollar EPS estimate from $5.65 to $5.40. Our estimate implies EPS growth of 15% for the year. We look for another year of growth in 2023, but we are lowering our preliminary adjusted U.S. dollar EPS estimate from $6.30 to $5.95 to reflect the lower 2022 EPS base.

The balance sheet is solid, and the company has a history of paying dividends and buying back stock. Management recently hiked the payout 19%, signaling confidence in its outlook. We think the current valuations are attractive given the company’s clean balance sheet and accelerated growth profile.

From a technical standpoint, the shares have been in a bullish pattern of higher highs and higher lows that dates back to July 2021, though the pattern has turned neutral in recent weeks.

To value the stock on a fundamental basis, we review historical P/Es and peer group multiples. CNI trades at 19-times our 2022 EPS estimate, near the midpoint of the five-year historical average range of 14-25 and in line with the industry average.

The stock’s price/sales ratio is above the industry average and the yield of 2% is above average. We think the current valuations are attractive given the company’s clean balance sheet and accelerated growth profile. Our 12-month target price is $145.