Canadian National Railway: Navigating Headwinds to Hit 2025 EPS Targets

The Canadian National Railway (CNR) has emerged as a bellwether of North American rail resilience, with its Q1 2025 results and reaffirmed financial guidance sparking a mix of analyst optimism and caution. Amid global trade tensions and macroeconomic uncertainty, CN’s ability to sustain its 10%-15% diluted EPS growth target for 2025 hinges on operational discipline, strategic capital allocation, and favorable macroeconomic conditions. Let’s dissect the numbers to assess whether this Canadian rail giant can clear these hurdles.

Q1 2025: A Strong Start, But Challenges Loom

CN’s Q1 results underscore its capacity to navigate headwinds. Diluted EPS rose 8% year-over-year to C$1.85, driven by cost controls and strong performance in key commodity sectors. Revenue grew 4% to C$4.403 billion, with gains in grain and fertilizers (+11%), petroleum and chemicals (+7%), and coal (+11%). These sectors are critical to CN’s revenue mix, and their outperformance reflects the company’s diversified portfolio.

Operational efficiency also shone: the operating ratio improved to 63.4%, while free cash flow surged 18% to C$626 million. This liquidity buffer positions CN well to fund its C$3.4 billion capital spending plan for 2025, which includes network upgrades to bolster capacity and reduce delays—a key priority after years of public criticism over service reliability.

2025 Guidance: Ambitious, but Achievable?

CN’s reaffirmed 10%-15% diluted EPS growth target for 2025 is ambitious but grounded in its Q1 momentum. The company expects full-year diluted EPS of C$5.58 billion to C$5.84 billion, assuming stable grain crops, oil prices between US$60–$70 per barrel, and a Canadian dollar at C$0.70 against the U.S. dollar. Analysts, however, project C$6.00 diluted EPS, slightly exceeding CN’s range—a divergence that may reflect differing macroeconomic assumptions.

Risks on the Tracks

While CN’s fundamentals are robust, external risks loom large. The company cites heightened recessionary pressures and global trade barriers as potential demand drags. A slowdown in North American industrial production or a drop in grain shipments—critical to CN’s rail volumes—could pressure margins. Fuel costs, which remain volatile, and potential labor disruptions also pose risks.

CN’s dividend increase to C$0.6159 per share quarterly (a 7.3% rise) signals confidence in cash flow, but the 47.66% payout ratio leaves room for further hikes only if earnings meet targets.

Analyst Sentiment: A Cautionary Buy

Recent analyst actions highlight a divided outlook. JPMorgan, TD Securities, and Wells Fargo upgraded CN to “Overweight” or “Strong-Buy,” citing its cost discipline and long-term growth trajectory. Conversely, Loop Capital downgraded to “Sell”, citing valuation concerns and macro risks. The C$120.36 consensus price target reflects this tempered optimism—a significant premium to its May 2, 2025, closing price of C$96.44, but achievable if CN meets its EPS goals.

Conclusion: A Railway Betting on Resilience

CN’s Q1 results and reaffirmed guidance suggest the company is on track to deliver its 2025 EPS target, albeit with risks. The 8% EPS growth in Q1 and 18% free cash flow surge provide a strong foundation, while C$3.4 billion in capital spending aims to address bottlenecks and lock in long-term efficiency gains.

The key variables are macroeconomic: if North American industrial production stays positive, grain crops meet expectations, and oil prices stabilize, CN’s rail network will thrive. Conversely, a recession or trade war escalation could derail progress.

The stock’s C$96.44 price—well below its 52-week high of C$129.18—hints at current market skepticism. Yet CN’s dividend growth, operational improvements, and the high single-digit EPS growth target through 2026 make it a compelling long-term bet for investors willing to tolerate near-term volatility.

In a sector where execution is everything, CN’s Q1 performance and disciplined strategy suggest it’s a railway worth watching—and perhaps investing in.