Safety Upgrades Will Pay Off for CN

Article Excerpt

CANADIAN NATIONAL RAILWAY CO. $95 (Toronto symbol CNR; SI Rating: Average) has suffered several derailments in the past few months. CN prefers to run longer trains, to save fuel and other costs. But longer trains are more difficult to control, particularly in mountainous terrain with steep grades and frequent twists. In fact, the company has had three derailments in British Columbia in the past three months. CN now aims to improve its safety record by spending $800 million on new rails, tires, bridges and signaling systems. That’s over half of the $1.5 billion or $5.30 a share that CN plans to spend on capital upgrades in 2006. That’s also large in relation to the $5.49 a share that CN will probably earn in 2005 (the stock trades at 17.3 times that figure). But improved safety will lead to fewer delays and lower lawsuit risk, which enhances CN’s long-term profits. CN Rail is a buy. buy…

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