CN Railway Delivers Resilient Q1 Earnings Amid Macro Headwinds

Canadian National Railway (CNR) has emerged as a standout performer in the rail sector, reporting robust Q1 2025 earnings that underscore its operational resilience and strategic discipline. Despite headwinds ranging from extreme weather to global trade uncertainties, CN’s 8% year-over-year surge in earnings per share (EPS) to $1.85 and a 4% revenue increase to an exchange-adjusted total highlight its ability to navigate turbulent conditions. Let’s dissect the numbers and assess whether this stock is primed for a rebound.

Operational Strength in Action

CN’s Q1 results were bolstered by a 2% improvement in labor productivity, driven by smarter resource allocation and training efficiencies. Even as extreme winter storms and flooding disrupted networks, CN swiftly rebounded, achieving record Canadian grain shipments in March. The company’s locomotive availability held steady at 91%, a critical metric for maintaining on-time deliveries despite harsh conditions.

Strategic investments in network upgrades, such as siding expansions and double-track projects in Western Canada, are set to deliver by Q4 2025. These initiatives aim to boost throughput and alleviate congestion, a key focus as CN eyes higher volumes in intermodal and bulk shipping—particularly through its Prince Rupert port, a gateway to Asian markets for Canadian liquids and plastics.

Financial Fortitude Amid Uncertainty

CN’s operating ratio tightened to 63.4%, a 20-basis-point improvement, reflecting cost discipline. Free cash flow surged to $600 million, up $100 million from 2024, thanks to higher operating cash flows and controlled capital spending. Despite these positives, CN’s stock dipped 0.34% post-earnings, closing at $141.62—a reaction some analysts attribute to broader market jitters rather than fundamentals.

Why the Undervaluation?

CN’s P/E ratio of 7.88x places it well below the sector average, signaling a potential buying opportunity. Analysts at InvestingPro highlight the stock’s “GREAT” Financial Health Score (3.13), supported by a 20% return on equity and 17% return on invested capital. The company’s leverage ratio is also healthy, with plans to keep debt-to-EBITDA at 2.5x, allowing room for buybacks and dividends.

Risks on the Horizon

CN isn’t immune to macroeconomic pressures. Management cited risks like U.S.-China trade tensions, auto industry tariffs, and potential recessions in North America. Near-term challenges include blank sailings (canceled ship voyages) and weaker demand for iron ore due to mine idling. Yet, CN’s diversified portfolio—spanning energy, agriculture, and industrial goods—gives it flexibility to pivot as markets shift.

The Bull Case: Why CN Could Outperform

Analysts emphasize CN’s 5-year revenue CAGR of 9%, fueled by infrastructure investments and gateway advantages like Prince Rupert. The company’s $600 million free cash flow provides a buffer for strategic moves, including resumed Q2 share buybacks, while its cost discipline positions it to meet its 10-15% full-year EPS guidance.

Final Take: CN’s Resilience Justifies a Buy

CN Railway’s Q1 results reaffirm its status as a high-quality, underappreciated asset in the rail sector. With a P/E ratio half the industry average, strong balance sheet metrics, and a clear roadmap for growth through infrastructure upgrades and market diversification, CN looks poised to outperform. While near-term risks linger, the company’s operational execution and undervalued stock make it a compelling pick for investors seeking stability in volatile markets.

Final Call: Hold for long-term gains—CN’s fundamentals align with its growth targets, and its undervaluation suggests a margin of safety. Monitor trade policy developments and Prince Rupert’s intermodal performance for further catalysts.