Stock Market Series

Do Canadian Railway Companies Have Long-Term Competitive Edge?

 

Back in over 100 years old, it was very common for goods to be transports via rail and sea.  Nevertheless, the introduction of trucks and airplanes later on had given companies other options to transports their products as road transport is the most flexible and air transport is the quickest.

Despite the falling popularity of rail transport, there are currently still a lot of goods that are being transport by rail in Canada such as metals, minerals, automotive, crude oil, grains, and specialty crops.

In fact, Warren Buffett bought Burlington Northern Santa Fe Railway, one of the largest freight railroad networks in North America, for $26.5 billion back in 2010 and it was his biggest acquisition ever.

It was obvious that Warren Buffett sees something in railway companies that others do not!  So should I jump on the bandwagon and invest in the two major Canadian public railway companies that are in my Stock Watch List?

Let’s take a look!

Canadian Pacific Railway Limited (TSE:CP)

Canadian Pacific Railway Limited (CP Rail), headquarters in Calgary, Alberta, Canada, owns approximately 20,000 kilometres (12,000 miles) of track all across Canada and into the United States. The company’s railway feeds directly into the United States heartland from the east and west coasts of Canada.  Moreover, the company transports commodities (grain, coal, potash, fertilizers and sulfur), machineries, finished vehicles, industrial and consumer products.  In 2016, the company’s revenue was $6,232 million dollars Canadian.

Here is the financial statement analysis of Canadian Pacific Railway Limited from 2013 to 2016 (click here if you need a review on accounting formulas):

Screen Shot 2017-10-27 at 2.03.07 PM

Although CP Rail uses less than 30% of gross profit on selling, admin and general expense in the last four years, I do not think I would invest in the company at this moment because its debt to shareholders’ ratio is high (meaning CP Rail uses debts to operates its daily operation).

Canadian National Railway Company (TSE:CNR)

Canadian National Railway Company (CN Rail) is the largest Canadian railway with a network of approximately 20,000 miles of tracks.  CN Rail is also the only Canadian transcontinental railway, spanning Canada from the Atlantic coast in Nova Scotia to the Pacific coast in British Columbia, and the Gulf of Mexico.  CN Rail’s railway system also connects to all points in North America in order to provide its customers access to the Canada, the USA and Mexico.   Lastly, CN Rail’s railway system carries over 300 million tons of cargo, serving exporters, importers, retailers, farmers and manufacturers.  In 2016, CN Rail generated a revenue of $12,037 million dollars Canadian.

Here is the financial statement analysis of Canadian National Railway Company from 2013 to 2016:

Screen Shot 2017-10-27 at 3.00.19 PM

Like CP Rail, I do not think I would invest in CN Rail its debt to shareholders’ ratio increases every year.   In addition, the P/E ratio is above 20 as of today (meaning the stock is overpriced).

Ultimately, railway companies are not as sexy as we think it is.

 

I think Warren Buffett invested in a railway company because it is an American company and the company probably performed better than CN Rail and CP Rail.

In the next post, I will finish analyzing the financial statements of the remaining companies in my Canadian Stock Watch List: Capital Power Corp (TSE:CPX), Imperial Oil (TSE:IMO), Canadian Utilities (TSE:CU), Northland Power (TSE: NPI), BCE Inc. (TSE:BCE), and Cogeco Inc. (TSE:CCA).

Do you currently hold railway companies in your portfolio? How are they performance? Please post your comments below! Catch you on the flip side!

 

6 thoughts on “Do Canadian Railway Companies Have Long-Term Competitive Edge?”

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