OTTAWA: The North American economy should improve “modestly” in the early part of 2017, but low volume growth is still the name of the game for Canadian railroads, according to a new analysis from Desjardins Capital Markets.
Canadian National Railway Co.’s freight volumes increased 6.3 per cent in the fourth quarter, while Canadian Pacific Railway Ltd.’s fell 3.5 per cent. The divergence can be explained by CP’s difficulties in moving grain through the Port of Vancouver, as well as the railway’s loss to CN of an automotive shipping contract with General Motors Co.
Desjardins analyst Benoit Poirier expects only two to three per cent volume growth for both railroads in 2017, supported by a bumper grain crop in both Canada and the United States.
Poirier reduced his CP price target to $220 from $227 and raised his CN target to $97 from $92. However, he maintained his buy rating on CP and his hold rating on CN, arguing that CP has more potential upside.
“We believe that our new (CP) estimates are conservative and that uncertainty around the (fourth-quarter) results and 2017 outlook are already priced in,” Poirier wrote in a note to clients. “We also expect grain and potash to remain a bright spot in 2017.”
CP will report its fourth-quarter and full-year results on Wednesday, while CN will report Jan. 24.
