Is It Time to Reassess Canadian National Railway After Recent Share Price Recovery?

If you have ever wondered whether Canadian National Railway (TSX:CNR) is a buy, hold, or sell, you are not alone. Plenty of investors are asking the same question, especially after seeing both the stock’s resilience and its recent turbulence. It was only a year ago that CNR’s share price felt nearly unstoppable. Fast forward to today, and things have clearly changed. The stock closed at CA$132.58, up a modest 1.4% over the past day and 2.8% over the last week, but longer-term results tell a different story. Over the past year, CNR has lost nearly 14.5% of its value, with a 9.7% setback just this year, hinting at a shift in how the market perceives its growth and its risk.

Despite these headwinds, some analysts are pointing out a possible silver lining. The company’s revenue and net income are still growing at a healthy pace. Annual net income rose 6.6% while revenue climbed 4.5%. Its current share price is about 15% below the average analyst price target, which has some investors wondering if the bad news is already priced in, or if there is even more upside ahead. When viewed through common valuation lenses, Canadian National Railway scores a 3 out of 6 for being undervalued, suggesting room for optimism without dismissing the risks.

So, is CNR a bargain or a value trap? Next, we will walk through the different methods experts use to value the stock, and reveal why even those tools might not give the clearest picture. There is one approach at the end of this article that goes beyond the usual numbers.

Canadian National Railway delivered -14.5% returns over the last year. See how this stacks up to the rest of the Transportation industry.

Approach 1: Canadian National Railway Cash Flows

The Discounted Cash Flow (DCF) model is a classic tool for valuing companies by projecting their future cash flows and discounting them back to today's dollars. This approach helps investors estimate what the company is actually worth based on its ability to generate cash in the years ahead.

Canadian National Railway currently generates annual Free Cash Flow of about CA$3.45 billion. Analysts expect this figure to keep climbing, with projections reaching just under CA$4.75 billion by 2035. These estimates consider growth in Free Cash Flow over the next decade, using a two-stage model that reflects both near-term expectations as well as longer-term stability for the business.

Based on these projections, the estimated intrinsic value of the stock is CA$123.67 per share. With CNR’s current market price above this level, the DCF model suggests the stock is about 7.2% overvalued compared to today's prices. This indicates the market is pricing in slightly more optimism than the current cash flow outlook supports, but the difference is not significant.

Result: ABOUT RIGHT

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Canadian National Railway's DCF analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Canadian National Railway Price vs Earnings

For companies like Canadian National Railway that generate steady profits, the Price-to-Earnings (PE) ratio is a widely accepted way to judge value in the market. The PE ratio shows how much investors are willing to pay today for one dollar of current earnings, making it easier to compare with peers and the broader industry.

The "right" PE ratio depends on investor expectations for growth and risk. Generally, if a company is expected to grow faster or is seen as less risky, the market is willing to pay a higher PE. If growth looks uncertain or risks are mounting, the fair PE tends to come down.

CNR’s current PE is 18.1x, compared to the Transportation industry average of 15.5x, and a peer group average of 21.1x. Simply Wall St’s Fair Ratio for CNR, factoring in growth potential, profit margins, industry dynamics, and market cap, comes in at 21.8x. Since its actual PE is below this Fair Ratio, there is an argument that CNR is trading at an attractive valuation given its potential, especially for investors able to look past short-term volatility and focus on fundamentals.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Canadian National Railway Narrative

A Narrative is simply the story behind a stock. It provides a clear perspective on where a company is headed, based on your own assumptions about future revenue, earnings, margins, and risk, all tied directly to a fair value calculation.

With Narratives, you do not just look at a company’s numbers in isolation; instead, you connect its business story and your beliefs (for example, about its market share or profit growth) to concrete financial forecasts and then to what you believe is a fair price for the stock today.

This approach is at the heart of the Simply Wall St platform. It makes it simple and accessible for anyone to build, share, or compare Narratives. You can instantly update your outlook as new data or news is released and see how your decisions compare within a community of millions of investors.

By creating or exploring Narratives, you can identify opportunities to buy or sell Canadian National Railway whenever your estimated Fair Value moves above or below the current share price.

For example, one Narrative for Canadian National Railway expects margin expansion and resilient cross-border demand, assigning a fair value of CA$185. In contrast, a more cautious Narrative sees long-term growth risks and sets the fair value at just CA$133.

Do you think there's more to the story for Canadian National Railway? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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