Canadian National Railway Company (CNI) is slated to report its third-quarter 2014 financial numbers on Oct 21, 2014.
In the previous quarter, thecompany posted strong second-quarter 2014 results that surpassed the Zacks Consensus Estimate on both the lines. Moreover, in all of the past four quarters, the company has outpaced the Zacks Consensus Estimate, with an average positive earnings surprise of 4.35%. Let’s see how things are shaping up ahead of this announcement.
Factors Likely to Influence this Quarter
Canadian National foresees strong demand across North America and expects to grow at a faster pace than the economy, maintaining a lower incremental cost alongside. The company expects robust demand across most of its businesses with improvements in consumer confidence in the U.S. and domestic retail markets, underpinning mid-to-high single-digit growth in business volumes in 2014. In addition, pricing should also be favorable with growth rising above cost inflation. We expect the operating ratio to remain at the current level of around 60% on enhanced productivity from improving system velocity and fuel efficiency. Given these positive factors, we believe the company will be able to achieve its projected double-digit year-over-year earnings growth in 2014.
On the flip side, Canadian National faces significant competition from rail carriers like Kansas City Southern (KSU) and other modes of transportation. It faces rivalry specifically from Canadian Pacific Railway, which operates the other major rail systems in Canada and services almost similar areas in which Canadian National serves. It also faces intense competition from trucking companies in eastern Canada. Moreover, global economic conditions may affect the working dynamics of Canadian National. Many of the bulk commodities the company transports move offshore and are affected more by the global economy, rather than North American economic conditions in particular. Despite steady progression in the North American economy, a soft recovery in global economic conditions may induce a negative impact on the volume of rail shipments and revenues.
Earnings Whispers?
Our proven model does not conclusively show that Canadian National is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: Canadian National has an earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are poised at 97 cents.
Zacks Rank:Canadian National has a Zacks Rank #3 (Hold), which increases the predictive power of ESP; however, when combined with an ESP of 0.00%, it makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions.
Stocks to Consider
Here are some companies in the sector that investors can consider, as, according to our model, they have the right combination of elements to post an earnings beat this quarter:
Norfolk Southern Corporation (NSC), with an earnings ESP of +0.55% and a Zacks Rank #2 (Buy).
Union Pacific Corporation (UNP) with an earnings ESP of +0.66% and a Zacks Rank #2.
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