With Canadian rail firms outperforming their United States counterparts in recent quarters, it’s easy to see why many American investors are looking north to invest their money. While Canadian National Railway (USA) (NYSE:CNI) and Canadian Pacific Railway Limited (USA) (NYSE:CP) dominate the northern rail lines, CSX Corporation (NYSE:CSX) also has a stake in Canadian freight deliveries.
Canadian deliveries have been steadily increasing in Canada due to strong demand in agricultural products, chemical carloads and intermodal.
Canadian National Railway diverts law suit, for now
Canadian National Railway (USA) (NYSE:CNI) shareholders can breathe a sigh of relief now that the firm has been exonerated by the Supreme Court of Canada after facing a potential $1.75-billion class action lawsuit. The court said the Saskatchewan law firm that filed the suit breached its duty of loyalty, as the firm had previously been retained by Canadian National Railway (USA) (NYSE:CNI). This is a relief to CN, but the firm could face a future suit in relation to allegations that the firm overcharged 100,000 Western farmers for transporting their grain.
Unlike many of its counterparts, Canadian National Railway (USA) (NYSE:CNI) transports an incredibly wide range of cargo. However, its competition largely carries more coal and less forest products. The company is strong in hauling chemicals, intermodal and agriculture, and that has helped the firm to increase its net income at about a 13% compounded annual rate over the past decade.
According to Morningstar, the fair value of the company is $102, yet it is currently priced at around $103 per share. However, I see the efficiency of the firm as being a major benefit moving forward, as the company continues to streamline operations with an ever-improving operating ratio (expenses/revenue), which has improved from about 90% to around 60%.
Canadian Pacific Railway recovering from Alberta floods
Canadian Pacific Railway Limited (USA) (NYSE:CP) is dealing with the aftermath of one of its bridges collapsing in Calgary. Other portions of its track were wiped out during a massive flood in Southern Alberta. A CP spokesperson said in late June that the company hadn’t figured out how much the damage has cost the company.
The firm’s future looks bright, as new CEO Hunter Harrison has made solid steps since joining the company at the end of the second quarter in 2012. He is getting costs under control in several departments, which indicates increased profit margins in the years ahead. In the first quarter after taking over, CP managed to more than double its profit margin, from around 7.5% to 15.5%.
CSX Corporation improves operating ratio
CSX Corporation (NYSE:CSX) operates in the Canadian provinces of Ontario and Quebec, as well as in 23 Eastern states. Similar to Canadian National Railway (USA) (NYSE:CNI), the company has shown major progress in the operating ratio. In 2003, the operating ratio was over 90%, but that has improved to about 71% recently. According to Morningstar, the company might manage to increase carloads in every commodity except for coal in 2013.