CANADIAN NATIONAL RAILWAY CO. $45 - Toronto symbol CNR

CANADIAN NATIONAL RAILWAY CO. $45 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 468.4 million; Market cap: $21.1 billion; Price-to-sales ratio: 2.5; SI Rating: Above Average) operates the largest freight-rail network in Canada. It also serves 16 U.S. states. In the three months ended March 31, 2009, CN’s revenue fell 3.5%, to $1.86 billion from $1.93 billion a year earlier. The recession cut freight volumes, and CN lowered its fuel surcharges in response to the drop in oil prices. Earnings rose 0.7%, to $302 million from $300 million. Earnings per share rose 3.2%, to $0.64 from $0.62, on fewer outstanding shares. These figures exclude several one-time items, including a gain on the sale of a Toronto rail line and expenses related to CN’s recent takeover of a Chicago-area railway. Still, the company benefitted from a lower income-tax rate and a weaker Canadian dollar, which increased the contribution of its American operations. CN is still one of the most efficient railways in North America, and its strong reputation is helping it weather the recession. For example, the company has renewed 70% of its 2009 shipping contracts, plus 20% of its 2010 contracts, with price increases of 4% to 5%. Despite this, CN’s earnings will probably fall to $3.47 a share this year. The stock trades at 13.0 times that estimate. The $1.01 dividend yields 2.2%. CN Rail is a buy.