Value Stocks Episode 9 – Canadian National Railway
- The railroad industry has a strong moat and a long-term competitive advantage vs. other forms of transportation.
- Owner earnings are very predictable over the long term.
- Management has done an excellent job returning capital to shareholders through buybacks.
In this episode, we discuss Canadian National Railway (NYSE:CNI). CNI is a Class I railway that operates in North America. Currently, CNI is trading around $78.03 per share, down from a 52-week high of $91.90. Everyone knows that railways are high-quality businesses that have the ability to produce predictable cash flows for their shareholders in the foreseeable future, but at what price does it make sense to start a position in this company? We hope you enjoy the episode.
Podcast Summary Notes
0:00 – Company Introduction
- What does it do?
- Do you own the stock?
3:30 – Why did you want to talk about this company?
- Very attractive industry with strong moat
- Buffett and Gates are both invested in the industry
- It’s a very interesting industry to learn about
4:00 – What do you like about the company?
- Strong moat
- Operates as a duopoly with many instances of only one of the two major Canadian railways serving a specific market.
- Predictable growth
- Cost advantage to moving heavy, low-priced cargo across large land masses
11:20 – What do you dislike about the company?
- Capital intensive
- Government intervention
- EPS growth will revert closer to historical revenue growth in the future
15:10 – Thoughts on management?
- Excellent in terms of how the rest of the industry has performed.
18:50 – Thoughts on moat?
- CNI operates in certain regional markets where it has monopolies like Price Rupert for intermodal
- It is generally a lot cheaper to ship heavy, low-value cargo by rail than truck
21:10 – Thoughts on growth, cash flow, and capital allocation?
- CNI has done a good job returning capital back to shareholders
- Management has not been particularly selective of the price it buys back shares at
- FCF is considerably lower than earnings as it spends up to $1.5 Billion on sustainable capital
26:00 – Valuation/Intrinsic Value of the business
- How did you calculate the intrinsic value?
- Is it an above average business?
33:45 – Final thoughts on the business