cn rail
BCE INC. $36.29, Toronto symbol BCE, is trading nearly 15% below the $42.75-a-share takeover offer it accepted in July 2007. This is partly because several institutional holders of BCE bonds have launched a class-action lawsuit to oppose it. BCE’s plan to take on more debt has hurt the value of their holdings. If the suit succeeds and forces BCE to compensate the bondholders for their losses, the Ontario Teachers’ Pension and its partners may decide to abandon the takeover. Liquidity problems in the debt markets could also scuttle the takeover, since that could hurt the ability of the takeover consortium to issue new bonds. This group has also lined up loans from several banks, but recent writedowns of U.S. subprime mortgages have raised fears that these banks may withdraw or cut their involvement. However, lower interest rates will cut the buyers’ costs. The drop in BCE suggests that the takeover is unlikely to go through. But at the current reduced price, BCE is once again an attractive buy for income and growth....
AGRIUM INC. $72.10, Toronto symbol AGU, has gained nearly 25% in the past month, partly due to a new energy bill in the United States that mandates a five-fold increase in the production of biofuels by 2022. As a major supplier of fertilizers, Agrium should profit from higher production of crops, such as corn, for use in ethanol production. The new bill may also help Agrium re-open its plant in Kenai, Alaska, which it recently shut down due to a lack of natural gas supplies. Agrium is studying a plan to convert coal into natural gas, and could receive subsidies that would offset the costs of a new facility. However, relying on the largely politically inspired ethanol boom for growth adds to Agrium’s risk. The company is also vulnerable to rising natural gas prices....
CANADIAN NATIONAL RAILWAY CO. $51 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 494.5 million; Market cap: $25.2 billion; SI Rating: Above average) has agreed to buy a major portion of a 319-km railway near Chicago for $300 million U.S. The company also plans to invest $100 million U.S. to expand capacity on the new line. To put these figures in context, CN earned $485 million (Canadian) or $0.96 a share in the third quarter of 2007. This lightly used line would let CN bypass heavy rail traffic in Chicago. However, the company’s plan to increase volume on these tracks has encountered strong opposition from local municipalities. CN had hoped to complete the purchase in early 2008. But an environmental review could delay the transaction by about 18 months. The stock trades at 15.1 times its projected 2007 earnings of $3.38 a share. Earnings should rise to $3.82 a share in 2008 as CN begins to realize the benefits from its new terminal in Prince Rupert, B.C. That gives it a p/e of just 13.4. The $0.84 dividend yields 1.6%....
The shares of Canada’s two big railways, CN and CP, have moved down in the past six months due to concerns that the high Canadian dollar would hurt export volumes. However, both are taking advantage of the high dollar to expand their operations in the United States. While these acquisitions have run into opposition from environmental groups and others, they should eventually win regulatory approval. CANADIAN NATIONAL RAILWAY CO. $51 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 494.5 million; Market cap: $25.2 billion; SI Rating: Above average) has agreed to buy a major portion of a 319-km railway near Chicago for $300 million U.S. The company also plans to invest $100 million U.S. to expand capacity on the new line. To put these figures in context, CN earned $485 million (Canadian) or $0.96 a share in the third quarter of 2007. This lightly used line would let CN bypass heavy rail traffic in Chicago. However, the company’s plan to increase volume on these tracks has encountered strong opposition from local municipalities. CN had hoped to complete the purchase in early 2008. But an environmental review could delay the transaction by about 18 months....
CANADIAN NATIONAL RAILWAY CO. $56 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 510.2 million; Market cap: $28.6 billion; SI Rating: Average) operates a 32,000-km freight railway network across Canada, and south to the Gulf of Mexico. It hauls a variety of goods, including oil, metals, grain, forest products and manufactured products. CN’s revenue fell from $6.1 billion in 2002 to $5.9 billion in 2003, but grew to $7.7 billion in 2006 partly due to acquisitions. Per-share profits rose from $0.91 in 2002 to $3.40 in 2006.
Prince Rupert has big growth potential
Perhaps CN’s most important purchase in the past few years was BC Rail Ltd. The deal expanded CN’s presence in Western Canada, and gave it exclusive rail access to the port of Prince Rupert, which is closer to Asia than other west coast ports....
CANADIAN NATIONAL RAILWAY CO. $54 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Average) plans to increase capital spending in 2007 by 4% over 2006. About half will go to basic items like replacing tracks and repairing bridges. It will also buy new locomotive and other railcars that will cut its fuel costs and improve safety. CN Rail is a buy. GREAT-WEST LIFECO INC. $34 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) continues to expand its retirement savings and healthcare insurance operations in the United States....
CANADIAN NATIONAL RAILWAY CO. $47 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Average) operates a 19,200-mile rail system in Canada and 16 Midwestern U.S. states. Goods shipped include oil, coal, grain, forest products and manufactured goods. This wide product base cuts CN’s reliance on any one commodity. CN’s revenue rose from $5.7 billion in 2001 to $6.1 billion in 2002, partly due to the acquisition of two American railways. Revenue fell to $5.9 billion in 2003, but more acquisitions pushed revenue up to $7.2 billion in 2005. Expanding through acquisition is always risky, but these new railways broadened CN’s geographic reach. Restructuring costs cut CN’s profits from $1.21 a share (total $727 million) in 2001 to $0.91 a share ($553 million) in 2002. But profits rose steadily to $2.77 a share ($1.6 billion) in 2005....
ARBOR MEMORIAL SERVICES INC. $20 (Toronto symbol ABO.A; SI Rating: Average) earned $0.42 a share in its first fiscal quarter ended January 31, 2006, down 2.3% from $0.43 a year earlier. Revenue grew 5.6%, partly due to last year’s acquisition of an Ottawa-based funeral home operator. It’s also earning more investment income from cemetery pre-payments and deposits. Arbor Memorial Services is a buy for aggressive investors. MAVERICK TUBE CORP. $45 (New York symbol MVK; SI Rating: Extra risk) plans to spend $10.4 million to expand its tubular goods finishing facilities in Calgary (all amounts in U.S. dollars). That’s about 16.5% of the $63.2 million or $1.54 a share that it earned in the three months ended December 31, 2005. Demand for new pipelines is growing strongly, and this expansion should quickly pay off....
CANADIAN NATIONAL RAILWAY CO. $92 (Toronto symbol CNR; SI Rating: Average) is Canada’s largest railway, with 19,300 miles of track in Canada and the United States. Goods shipped include forest products, petroleum and chemicals, and grain and fertilizers. In the third quarter of 2005, CN earned $1.47 a share (total $411 million), up 23.5% from $1.19 a share ($346 million) a year earlier. Most of the gain came from higher freight rates to offset rising fuel costs. Revenue rose 5.9%, to $1.8 billion from $1.7 billion. The company is still the most efficient railroad in North America. Its operating ratio (regular operating expenses divided by revenue — the lower, the better) fell to 63.3% in the most recent quarter, from 65.4% a year earlier....
Canada’s top two railway stocks moved up sharply in 2005, as strong volume growth helped them overcome higher fuel costs. Lower production of coal and other commodities could cut into their revenue in 2006, but the payoff from recent investments in new locomotives and tracks should help their profits grow. We see Canada’s railways as portfolio cornerstones and we feel all Canadian investors should own a least one railway stock. CANADIAN NATIONAL RAILWAY CO. $92 (Toronto symbol CNR; SI Rating: Average) is Canada’s largest railway, with 19,300 miles of track in Canada and the United States. Goods shipped include forest products, petroleum and chemicals, and grain and fertilizers. In the third quarter of 2005, CN earned $1.47 a share (total $411 million), up 23.5% from $1.19 a share ($346 million) a year earlier. Most of the gain came from higher freight rates to offset rising fuel costs. Revenue rose 5.9%, to $1.8 billion from $1.7 billion....