Is CN Rail (TSX:CNR) Stock a Buy Before Earnings?

CN Rail (TSX:CNR)(NYSE:CNI) is hitting 52-week highs. Is this top defensive stock a buy before second-quarter results on Tuesday?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The earnings season is about to ramp up. This week, there are several high-profile TSX-listed companies scheduled to report earnings. Among them, Canadian National Railway (TSX:CNR)(NYSE:CNI) is on deck to report second-quarter results after the close on Tuesday.

This quarter will be among the most watched in recent history. Investors will finally get insights into the impacts of COVID-19 mitigation efforts and the subsequent economic shutdown. 

Is CN Rail a buy before earnings? Let’s take a look. 

Q2 expectations

Analysts are expecting CN Rail to post earnings of $1.26 per share and revenue of $3.25 billion. This represents drops of 27.17% and 17.90% over the second quarter of 2019. 

Looking forward, Canada’s largest railway is expected to see full-year earnings drop by 20.1% and 13.3% in 2020 and 2021, respectively. Revenue is expected to drop by 7% in 2020 before rebounding by 1.9% in 2020. 

Given this, it is somewhat surprising to see that the stock is hitting 52-week highs. On Friday, CN Rail closed at $129.50, which is an all-time high, and at a 7.6% premium to analysts’ one-year average price target of $118 per share. The company is a long way from March’s 52-week low of $92.09, and one must question whether the big bounce is justifiable. 

This is especially true when one considers that the Bank of Canada expects GDP to drop by 7.8% in 2020. In fact, analysts don’t expect the economy to reach pre-pandemic levels until at least 2022.

As railways are a bellwether of the economy, CN Rail’s second-quarter results will be closely analyzed.

Historical performance

Although CN Rail’s stock price looks pricey given estimates, it has a history of delivering. Over the past 12 quarters, earnings have either beat, or been in line with analysts’ estimates. 

That being said, revenue is less consistent. Over the past 12 quarters it has beat seven times and missed on five occasions. 

It is also worth noting that revisions have been trending downwards. Over the past 90 days, 15 analysts have revised downwards, and earnings estimates now sit 26% lower than where they were only 90 days ago.  

Given these downwards revisions, even an earnings beat may not be enough to push its CN Rail stock upwards. In fact, it will likely require a meaningful beat along with a better-than-expected outlook to drive any meaningful share price appreciation.

Is CN Rail a buy?

On the basis of earnings alone, CN Rail stock is not one I’d aggressively accumulate. The stock price is hitting all-time highs, despite the fact that earnings and revenue will drop in a meaningful way. 

This also means that the company is trading at pretty expensive valuations. It is now trading at 24 times earnings, which is quite pricey for a stock that will not grow earnings for another two years. 

Need another reason to avoid CN Rail’s stock before earnings? Last week, the company entered overbought territory with a 14-day RSI of 72. This means that it is likely due for a short-term dip — a dip that may come along with second-quarter earnings.

All things considered, investors should pay close attention to management’s commentary on the outlook for the second half. As a CN Rail shareholder myself, I’d choose to wait for a meaningful pullback before adding to my position.

Should you invest $1,000 in BCE right now?

Before you buy stock in BCE, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and BCE wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien owns shares of Canadian National Railway. David Gardner owns shares of Canadian National Railway. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Canadian National Railway.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

stocks climbing green bull market
Dividend Stocks

A 9% Dividend Stock Paying Cash Every Month, and Perfect in a Volatile Market

It's a volatile time, but this dividend stock can help you through it.

Read more »

Canada day banner background design of flag
Dividend Stocks

Top Canadian Stocks for a $7,000 Investment Today

These Canadian stocks are trading in the green year-to-date and have consistently outperformed the broader markets with their returns.

Read more »

Car, EV, electric vehicle
Dividend Stocks

Carney Cuts the Carbon Tax: What to Do With Your Savings

You can invest in stocks like Alimentation Couche-Tard Inc (TSX:ATD) with your carbon tax savings.

Read more »

dividend growth for passive income
Dividend Stocks

Boost Your 2025 Returns: 4 High-Yield Canadian Dividend Champions

These high-yield dividend stocks have reliable operations and generate significant passive income, making them four of the best to buy…

Read more »

Data center servers IT workers
Dividend Stocks

1 Magnificent Canadian Stock Down 44% as AI Investing Heats up

This Canadian stock not only has growth, but in one of the best growth areas right now.

Read more »

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Tariff-Resilient Income: 2 Canadian Dividend Stocks to Weather Economic Uncertainty

Emera (TSX:EMA) and another dividend stock are worth buying despite tariff threats.

Read more »

Dam of hydroelectric power plant in Canadian Rockies
Dividend Stocks

Is Brookfield Renewable Stock a Buy for its 6.7% Dividend Yield?

Brookfield Renewable is a TSX dividend stock that offers shareholders a dividend yield of almost 7% in April 2025.

Read more »

sale discount best price
Dividend Stocks

2 Bargain Stocks Where I’d Invest $10,000 Now for Potential Growth Through 2030

Add these two TSX growth stocks to your self-directed investment portfolio to unlock massive growth potential for the rest of…

Read more »