CN Railway Defies Tariff Gloom, Keeps 2025 Growth Outlook

CN Railway’s first-quarter results underscore its resilience in a volatile global trade environment, as the company maintains its 2025 earnings targets despite escalating tariff-related risks. With adjusted diluted EPS rising 8% year-over-year to C$1.85 and revenue hitting C$4.403 billion, CN has demonstrated operational discipline even as geopolitical tensions loom.

Financial Fortitude Amid Uncertainty

CN’s Q1 performance reflects a blend of strategic pricing and cost control. While carloads dipped 2% to 1.313 million, revenue per ton mile increased 3%, driven by price hikes in key sectors like petroleum, chemicals, and grain. The company’s operating ratio improved to 63.4%, marking its eighth consecutive quarter below 64%. This efficiency, coupled with a robust C$626 million in free cash flow, positions CN to navigate macroeconomic headwinds.

Despite strong fundamentals, CN’s stock dipped slightly post-earnings—a reaction to broader market jitters about trade wars and a potential recession. However, its trailing P/E ratio of 7.88x remains compelling compared to peers, suggesting undervaluation if risks subside.

Tariffs: A Sword of Damocles

While CN has so far avoided material volume declines from tariffs, management warns that unresolved trade disputes could disrupt demand. The company highlighted “heightened recessionary risks” tied to U.S.-China tensions and North American trade dynamics. For instance, a 17% surge in coal volumes and 1% gain in grain shipments in Q1 masked vulnerabilities in metals (-8%) and forest products (-7%), sectors acutely sensitive to trade policies.

CEO Tracy Robinson emphasized the need for agility: “We’ve not seen a significant impact to our volumes yet, but uncertainty has increased.” This cautious tone is warranted—CN’s 2025 EPS target of 10-15% growth hinges on stable trade conditions and economic resilience.

Operational Momentum and Capital Priorities

CN’s C$3.4 billion 2025 capital program aims to solidify its competitive edge. Investments in locomotive upgrades and network modernization will enhance capacity, critical as intermodal volumes face headwinds from blank sailings and supply chain shifts. Meanwhile, labor negotiations have advanced, with U.S. unions representing half the workforce now under contract—a stabilizing factor for operations.

Outlook: Balanced Growth, But Clouds Linger

CN expects low-to-mid-single-digit volume growth in 2025, buoyed by rail-to-rail efficiencies and customer collaboration. Its financial metrics—4% revenue growth in Q1 and an improved operating ratio—align with its long-term goal of high single-digit EPS growth through 2026.

However, the risks are substantial. A U.S. recession or prolonged trade conflict could slash demand for CN’s services. Management’s focus on liquidity (free cash flow rose 18% year-over-year) and flexibility suggests preparedness, but investors must weigh the stock’s valuation against downside scenarios.

Conclusion: A Value Play, but with Caveats

CN Railway’s Q1 results and financial discipline argue for cautious optimism. With an 8% EPS beat and a P/E ratio well below the S&P 500 average, the stock presents value if trade tensions ease. Yet, the company’s exposure to global trade and commodity cycles means investors must monitor macro risks closely.

CN’s 10-15% EPS growth target for 2025 remains achievable if current volumes hold and capital investments pay off. But with CEO Robinson calling the outlook “cautiously optimistic,” the railroad’s success in 2025 will depend as much on geopolitical stability as operational execution.

In a sector where uncertainty reigns, CN’s fundamentals—bolstered by a strengthened balance sheet and strategic investments—position it to weather storms. For investors willing to bet on a resolution to trade disputes, CN’s stock could be a strategic bet in the coming quarters.