cn rail
The recession continues to drive down railway volumes and stock prices. However, both CN and CP have been cutting costs, which will help them increase their profits once the economy starts growing again. As well, both recently made acquisitions in the U.S. that should fuel their growth. 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....
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....
TECK RESOURCES LTD. $18 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 486.9 million; Market cap: $8.8 billion; Price-to-sales ratio: 1.2; SI Rating: Extra Risk) will see its coal-shipping costs fall by $70 million this year following a favourable arbitration ruling over CP Rail. The two companies could not agree to a new contract, so Teck opted for arbitration. To put these savings in context, Teck earned $227 million, or $0.47 a share, in the first quarter of 2009. Separately, Teck has reached a new deal with CN Rail that will see CN ship more of Teck’s coal. Being able to use both CP and CN should help Teck improve its efficiency. Teck Resources is a buy.
BANK OF MONTREAL, $43.80, Toronto symbol BMO, earned $358 million in its second quarter, which ended April 30, 2009. That’s down 44.2% from $642 million a year earlier. Earnings per share fell 51.2%, to $0.61 from $1.25, on more shares outstanding. If you exclude writedowns of securities it holds and severance costs related to the layoff of 1,100 employees, the bank would have earned $0.91 a share. That beat analysts’ forecasts of $0.90, and the stock gained over 5%. The recession forced Bank of Montreal to set aside $372 million for bad loans in the latest quarter, up 146.4% from $151 million a year earlier. Still, that’s down 13.1% from $428 million in the first quarter. Moreover, the staff cuts, which amount to 3% of the bank’s total workforce, should save at least $118 million a year....
TECK COMINCO LTD., $9.94, Toronto symbol TCK.B, has agreed to sell most of the gold from its Andacollo gold/copper mine in Chile to Royal Gold Inc. (Toronto symbol RGL). Teck owns 90% of Andacollo, and the Chilean government owns the remaining 10%. The mine should begin operating by the end of this year, and reach full production in mid-2010. Teck and the Chilean government will continue to own and operate the mine. Royal Gold is just buying the output. Royal Gold will pay a total of $300 million, consisting of $100 million in cash and $200 million in Royal Gold shares (all amounts except share price in U.S. dollars). Teck’s 90% share is equal to $270 million. To put this amount in context, Teck earned $1.7 billion (Canadian), in 2008. This is equal to $3.76 a share before writedowns and other one-time items....
Grande Cache Coal Corp., $1.33, symbol GCE on Toronto (Shares outstanding: 96.1 million; Market cap: $127.8 million), is a Calgary-based coal-mining company. Grande Cache produces metallurgical coal, which it sells to steelmakers around the world. The company first sold shares to the public at $2.60 each, and began trading on Toronto in May 2004. Grande Cache holds coal leases that cover over 54,000 acres in the Smoky River coalfield, which is in the Grande Cache area of west-central Alberta. This part of the coalfield is served by a CN Rail line, which gives the company access to major shipping ports at Roberts Bank and Prince Rupert, both of which are on the British Columbia coast. To the east, the CN line connects Grande Cache to the Great Lakes at Thunder Bay, Ontario. Grande Cache has one surface, or open-pit, mine and one underground mine at the site. It has applied for approval to develop two more surface mines. The company holds four coal leases that cover these mines, and 10 more that have exploration and development potential....
CANADIAN NATIONAL RAILWAY CO. $44 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 464.9 million; Market cap: $20.5 billion; Price-to-sales ratio: 2.5; SI Rating: Above Average) operates the largest freight-rail network in Canada, and serves 16 U.S. states. It hauls consumer and industrial goods, which accounted for 21% of its 2008 revenue, forest products (19%), grain and fertilizers (18%), petroleum products (18%), metals and minerals (12%), coal (6%) and autos (6%). CN’s revenue rose from $6.5 billion in 2004 to $8.5 billion in 2008, partly due to acquisitions. Earnings grew from $1.3 billion, or 2.17 a share, in 2004 to $1.8 billion, or $3.40 a share, in 2006. CN’s earnings slipped to $1.7 billion, or $3.40 a share, in 2007. U.S. and cross-border traffic accounts for about half of CN’s revenue, and the higher Canadian dollar hurt the contribution from its American businesses. But thanks partly to a lower Canadian dollar, 2008 earnings improved to $1.8 billion, or $3.71 a share.
Most efficient in North America
Despite higher fuel costs in 2008, CN is still one of the most efficient railways in North America. In 2008, its operating ratio worsened to 65.9% from 63.6% in 2007. (Operating ratio is calculated by dividing a company’s regular operating costs by its revenue. The lower the ratio, the better.) Falling oil prices should lower CN’s operating costs in 2009, and new investments in locomotives and rail yards should also help improve its overall efficiency....
CANADIAN NATIONAL RAILWAY CO. $42 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 468.1 million; Market cap: $19.7 billion; Price-to-sales ratio: 2.3; SI Rating: Above average) is down 28.1% from $58.44 in September, 2008....
Many of our recommendations have dropped sharply in the past few months, along with the overall market. Here are 10 stocks that we feel have strong rebound potential in 2009. CANADIAN IMPERIAL BANK OF COMMERCE $49 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 380.8 million; Market cap: $18.7 billion; Price-to-sales ratio: 1.5; SI Rating: Above average) is down 37.6% from its recent peak of $78.48 in May, 2008. That’s mainly because it has the most exposure to the problems in the U.S. mortgage market among the big five Canadian banks. CIBC has taken substantial writedowns in the past year, which should cover most of the damage. It also continues to expand its retail banking operations, as well as scale back its riskier operations. CIBC is a buy....
PRECISION DRILLING TRUST $8.81, Toronto symbol PD.UN, has completed its acquisition of U.S.-based contract driller Grey Wolf Inc. The trust paid roughly $1.15 billion in cash and $250 million in new units for Grey Wolf. Precision finalized the terms of the Grey Wolf takeover in August, 2008. Since then, the price of Precision’s units has dropped 60%, mostly due to a 70% drop in oil prices, from $120 U.S. a barrel to $40 U.S. The drop in oil and natural gas prices prompted many producers to cut spending on new exploration in 2009, which hurts Precision’s profit outlook. Precision’s market cap is now just $1.1 billion, which is 21% below the $1.4 billion that it paid for Grey Wolf. Precision also needed to arrange $1.6 billion U.S. in new credit facilities to buy Grey Wolf. That greatly increased its long-term debt, which was $231.8 million (Canadian) at September 30, 2008. To help free up cash for debt repayments, Precision has now cut its monthly cash distributions by 69.2%, from $0.13 a unit to $0.04. The new annual rate of $0.48 yields 5.4%....