Monday, March 14, 2011

Canadian National Railway 2

This is a company (TSX-CNR) that I have owned since July 2005. I also bought some more stock in January 2009. I have made a return of 15.6% per year on this stock. Most of this return is in capital gain, as only around 2% would be from dividends.

When I look at the Insider trading report, I find that there is a lot of insider selling ($27M) and small amount of insider buying ($1.7) over the past year. A lot of the insider selling seems to be of options by officers of the company. Except for the directors, other insiders have a lot more options that stock. A sign of insider confidence in this company is the recent dividend increase of some 20%.

I get a 5 year median low Price/Earnings Ratio of 10.9 and a 5 year median high P/E Ratio of 14.6. So, the current P/E Ratio I get of 15.4 is relatively high for this stock. I get a Graham Price of $50.92. The stock price of $72.22 is some 29.5% higher than the Graham Price. On average, the stock price is some 11% higher than the Graham Price. At the 5 year average high stock price, the stock price is some 29% higher than the Graham Price. This also shows a relatively high stock price.

I get a 10 year average Price/Book Value Ratio of 2.18 and a current P/B Ratio of 2.95. So this ratio is around 35% higher than the 10 year average. I get a 5 year average dividend yield of 1.7% and a current yield of 1.8%. So by this standard, the stock price is reasonable. Do not forget that the Graham Price and P/E Ratios are based on estimates, where the P/B Ratio and Dividend yield are not.

When I look at analyst recommendations, I find ones of Strong Buy, Buy and Hold. There are a lot of Hold recommendations, but the consensus recommendation would be a Buy because of the Strong Buy recommendations. (See my site for information on analyst ratings.)

Even the analysts with Buy recommendations state that this stock has trouble getting a higher P/E Ratio than 15. Analysts with Hold recommendations worry that the price of oil will adversely affect this company’s performance. Analysts with Hold recommendations see the company being around $73.50 in twelve months time and those with a Buy recommendation see the company with a stock price of some $85 in twelve months time.

This company has performed well for me and I will hold on to it. However, I have enough stock in railways; so I will not be buying any more in this sector. This company plays an essential role in our Canadian economy. It is also on the dividend lists that I follow of Dividend Achievers and Dividend Aristocrats (see indices).

Canadian National Railway Company and its operating railway subsidiaries, spans Canada and mid-America, from the Atlantic and Pacific oceans to the Gulf of Mexico, serving the ports of Vancouver, Prince Rupert, B.C., Montreal, Halifax, New Orleans, and Mobile, Ala., and the key metropolitan areas of Toronto, Buffalo, Chicago, Detroit, Duluth, Minn./Superior, Wis., Green Bay, Wis., Minneapolis/St. Paul, Memphis, St. Louis, and Jackson, Miss., with connections to all points in North America. Its web site is here CNR. See my spreadsheet at cnr.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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