Canadian National (CNI) Stock Gains on Buyback Announcement

Shares of Canadian National Railway Company CNI were up 2.17% on Sep 17, closing the trading session at $118.31. The uptick followed the railroad operator’s decision to resume its share buyback plan that was cleared by its board in January, 2021.

Canadian National aims to complete its remaining share repurchases (C$1.1 billion) by the end of Jan 31, 2022. In a further shareholder-friendly move, the company intends to expand its buyback program to as much as C$5 billion next year.

Management also announced that it intends to reduce the capital spending owing to the “current good condition of its network and the company’s continued absolute commitment to safety and customer service”. To this end, the railroad operator aims to lower capex to 17% of its revenues next year. Unless there are significant market shifts, Canadian National looks to maintain its capital budget for the 2023-2024 forecast period at 2022 level. Retaining its efforts to control costs and increase efficiencies, Canadian National aims to achieve an operating ratio (operating expenses as a percentage of revenues) of 57% next year. Adjusted operating ratio was 61.6% in the June quarter. Lower the ratio, the better.

The company still anticipates earnings per share to grow in double digits during 2021 from the adjusted earnings of C$5.31 reported in 2020. Earnings per share for 2022 are expected to grow approximately 20%, courtesy of its above-value creation plan. The company is targeting C$700 million of additional operating income in 2022 by virtue of its initiatives.

The above announcements came shortly after Canadian National, currently carrying a Zacks Rank #4 (Sell), abandoned its efforts to buy Kansas City Southern KSU. Following its withdrawal, the path is now clear for another bidder Canadian Pacific Railway Company CP to acquire the same.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Even though Canadian National’s takeover bid collapsed, shareholders remain unperturbed as they believe that the company will continue to flourish even without the Kansas City Southern deal.

TCI Management Ltd, which is one of Canadian National’s stakeholders with more than 5% interest, is reportedly leading a shareholders’ revolt as it is not happy with the company’s performance and its decision to pursue the Kansas City Southern buyout deal before it eventually fell through following a regulatory setback. TCI Management is looking to replace CEO Jean-Jacques Ruest and four other board members. TCI is looking to get Ruest replaced by Jim Vena, who was recently at the helm of Union Pacific UNP.

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