Value Stocks Episode 9 – Canadian National Railway

by Dec 13, 2018Value Stocks Podcasts Episodes0 comments

CNR stock analysis
  • 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

Welcome to!

My name is Alex Middleton and I am from Calgary, Alberta.  I believe investing requires one to carefully study publicly available information in an attempt to develop a thesis based on reason and logic.  It also requires one to properly account for the unknown by applying probabilities and margin of safety to their thesis.  I hope you enjoy the content!