Canadian National Railway (TSX:CNR) had a rough ride in 2024. Contrarian investors with an eye for value are wondering if CNR stock is now undervalued and good to buy for a self-directed Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) focused on dividends and long-term total returns.
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CNR share price
CN trades for close to $151 at the time of writing. The stock is down about 9% in the past year and has traded in a range of $143 to $181 over the past 12 months.
CN just reported full-year 2024 results that show the various challenges the company faced during the year. Labour disruptions at the company and at Canada’s ports caused delays, drove up expenses, and forced some international customers to reroute shipments to the United States.
In addition, CN had to contend with wildfires and the early arrival of winter. These situations impact train speeds and delay shipments.
In the fourth quarter (Q4) of 2024, CN reported a 3% decrease in revenue ton miles (RTM) compared to the same period in 2023. Revenue declined by $113 million in the quarter, or 3%. Operating income slipped 10% to $1.628 billion. Efficiency also took a hit. The operating ratio, which measures operating expenses as a percentage of revenues, rose 3.3 points to 62.6%. Adjusted diluted earnings per share dropped 10% compared to Q4 2023.
For all of 2024, RTM rose 1% and revenues also increased by 1% compared to 2023. Operating income slipped 5% to $6.247 billion. The operating ratio was 2.6 points higher to 63.4%. Adjusted diluted earnings per share decreased 2% to $7.10.
The results are disappointing for investors, but the numbers for the year were actually pretty good considering all the challenges the company faced.
Outlook
Labour disruptions should largely be in the rearview mirror, so that isn’t expected to be an issue in 2025. Weather remains unpredictable, however, and the trend towards more frequent and more severe climate events has to be taken into consideration when evaluating the stock.
The main uncertainty for 2025, and potentially 2026, is the risk of a trade war between the United States and Canada. The Trump administration is expected to announce the first round of tariffs on February 1. CN transports a wide range of commodities and finished goods between the two countries, so any slowdown in trade caused by tariffs would impact CN’s rail volumes and put a dent in revenue.
In the 2024 earnings report, CN said it expects 2025 adjusted diluted earning per share (EPS) growth of 10% to 15% and has a capital program of roughly $3.4 billion in the works. Management’s outlook appears to be very positive, even with the trade uncertainty.
Dividends and share buybacks
CN announced a 5% dividend increase for 2025. This is the 29th consecutive annual dividend hike from the company. CN went public in the mid-1990s. The board is also putting a new share-buyback plan in place that will see CN repurchase up to 20 million shares over the next 12 months.
At the current share price, CN’s dividend provides a yield of 2.2%.
Time to buy?
Caution is warranted until there is clarity on the extent and timing of tariffs that will be placed on goods entering the United States from Canada. That being said, CN is likely undervalued right now and should be a solid long-term pick for investors. Buying the stock on meaningful pullbacks has historically proven to be a savvy move for patient investors.
