RBC's Optimistic Outlook on Canadian Rail and Logistics Stocks: Assessing the Investment Case for CP Rail and CN Rail Amid 2025 Earnings Expectations and Strategic Momentum

The Canadian rail sector remains a focal point for investors navigating a complex macroeconomic landscape. RBC Capital's recent analysis underscores divergent trajectories for the two dominant players—Canadian Pacific Kansas City (CP) and Canadian National Railway (CNR)—as they navigate trade uncertainties, capital expenditures, and earnings expectations in 2025. While CN Rail has tempered its growth forecasts, CP Rail continues to project robust expansion, creating a compelling case for strategic differentiation.

CN Rail: Defensive Valuation Amid Operational Headwinds

Canadian National Railway's 2025 guidance reduction—from 10-15% to mid-single-digit EPS growth—reflects broader macroeconomic pressures, including trade volatility and tariff risksCanadian Analyst Coverage Updates: July 7th, 2025^[1]. This downward revision has prompted analysts to cut price targets, with RBC lowering its CNR target to $157 from $161 while maintaining an “Outperform” ratingBetter Railway Stock: Canadian Pacific vs Canadian National^[2]. Despite these challenges, CN's defensive attributes remain compelling. Its trailing P/E ratio of 17.77 is significantly lower than CP's 27.01, offering a more attractive valuation for risk-averse investorsBetter Railway Stock: Canadian Pacific vs Canadian National^[2].

CN's capital allocation strategy further strengthens its long-term appeal. The company has committed CAD$3.4 billion to infrastructure upgrades in 2025, including CAD$80 million in Atlantic Canada and CAD$110 million in Wisconsin, aimed at enhancing capacity and supporting sustainable growthBetter Railway Stock: Canadian Pacific vs Canadian National^[2]. These investments, coupled with a 5% dividend increase for 2025—the 29th consecutive annual raise—underscore CN's commitment to shareholder returns1 Magnificent Canadian Stock Down 22% to Buy and Hold for ...^[3]. RBC analyst Irene Nattel anticipates a “stronger” second half of 2025 for CN, citing improving volume trends and a Q2 2025 EPS estimate of $1.90, reflecting 2.9% year-over-year growthMonday's analyst upgrades and downgrades^[4].

CP Rail: Aggressive Growth and Operational Resilience

In contrast, Canadian Pacific Kansas City has emerged as the sector's growth story. RBC's Walter Spracklin maintains a “Buy” rating for CP with a $127 price target, aligning with a broader analyst consensus of “Strong Buy” and a 14.09% upside potentialRBC Capital Sticks to Its Buy Rating for Canadian Pacific Kansas City^[5]. CP's Q2 2025 performance—projected at $1.15 EPS, a 9.7% year-over-year increase—highlights its operational resilience, driven by intermodal and bulk commodity strengthMonday's analyst upgrades and downgrades^[4].

CP's 2025 guidance of low-teens adjusted EPS growth contrasts sharply with CN's revised outlook, supported by its expanded network and efficiency gainsBetter Railway Stock: Canadian Pacific vs Canadian National^[2]. Analysts from Stephens and J.P. Morgan have raised price targets to $119–$134.18, citing confidence in CP's long-term potential despite short-term regulatory uncertainties from the Union Pacific/Norfolk Southern mergerRBC Capital Sticks to Its Buy Rating for Canadian Pacific Kansas City^[5]. While CP's higher valuation metrics (27.01 P/E) may deter some investors, its strong volume growth (7% in the most recent quarter) and earnings momentum justify the premiumCanadian Analyst Coverage Updates: July 7th, 2025^[1].

Strategic Implications for Investors

The divergent strategies of CP and CN present distinct risk-reward profiles. CN's lower valuation and defensive capital program make it a safer bet in a volatile macroeconomic environment, particularly for income-focused investors. However, CP's aggressive growth trajectory and operational efficiency gains position it as a high-conviction play for those willing to tolerate near-term uncertainties.

RBC's optimism for the sector hinges on the ability of both companies to adapt to evolving trade dynamics and regulatory shifts. For CN, the success of its CAD$3.4 billion investment program will be critical to restoring growth momentum. For CP, maintaining its earnings trajectory amid merger-related disruptions will test its operational agility.

Conclusion

As 2025 unfolds, the Canadian rail sector offers a nuanced investment landscape. CN Rail's defensive positioning and CN's disciplined capital allocation provide stability, while CP Rail's growth-oriented strategy and strong earnings momentum cater to more aggressive investors. RBC's analysis, supported by granular analyst ratings and capital expenditure data, reinforces the sector's long-term potential, even as macroeconomic headwinds persist.