Analyst Cherilyn Radbourne cut her rating on the stock to hold from buy, and trimmed her price target to $86 from $89, after CN reduced its 2016 earnings per share forecast to flat (year-over-year) from its previous guidance of mid-single-digit growth.
So while the start of the year was very strong, as the company’s operating ratio dipped 680 basis points to a first-quarter low of 58.9 per cent, CN now expects carload volumes to fall four to five per cent. It blamed soft trends in crude-by-rail, frac sands and coal, while Canadian grain is also expected to be weak until harvest time arrives.
Despite these hurdles, Radbourne told clients that the downgrade is primarily due to CN’s recent share price performance. The stock had risen more than 20 per cent since mid-January, before selling off sharply on Tuesday.
“We believe that CN is a relatively low-risk, high-quality industrial company, and we continue to view the company as well-positioned relative to peers in light of the volume outlook,” the analyst said, pointing to its low coal exposure, high exposure to areas like lumber, and growth opportunities in its international intermodal business.