Canadian National or Canadian Pacific? Analysis – October 2023

I read an article in Globe and Mail asking which company is better, Canadian National or Canadian Pacific? So I made a small analysis.

Canadian National Railway (CNR.TO)
–Slowing Net Income of $5,470m in FY2017 down to $5,118m in FY2022
-Net Income over 6-year period in decline whilst revenue went up from $13,041m in FY2017 to $17,107m in FY2022
– $37.62bn in assets in FY2017 up to $50.66bn, greatly increasing shareholder equity (or book value) from $16.65bn in FY2017 to $21.38bn in FY2022
–Route miles was 19,500 in FY 2017, it dropped a little to 18,600 in FY2022
–Guidance is adjusted diluted EPS growth in the mid single digits over 2022

Comparisons:
–Revenue-Ton-Miles, revenue earned for transporting one ton of freight across one mile, was 235,788m (CNR), 148,228m (CPKC)
–Operating Ratio (operating expenses divided by revenues) for Q2 2023 was 70.3% (CPKC) and 60.6% (CNR)
–Dividend of 0.77% with 16% payout (CPKC), 2.15% with 39% payout (CNR)
-CNR has seen its stock increase by 1,203 per cent since Sept. 1, 2001. CPKC has done better, with growth of 1,932 per cent in the same period.

Canadian Pacific Kansas City (CP.TO):
-Canadian Pacific bought Kansas City Southern for $31bn in 2021. KCS had revenues of $3,370m and $983m in net income for the year ended 2022. “Full integration of CP and KCS is expected to take place over the next three years, unlocking the benefits of the combination.” Also: “it will reduce travel time for traffic moving over the single line service; it should result in increased incentives for investment; and it will eliminate the need for the two now-separate CP and KCS systems to interchange traffic moving from one system to the other.” KCS has 7,100 route miles extending from the midwest and southeast portions of the United States south into Mexico and connects with all other Class I railroads. CP had 13,000 miles in 2020.
-CPKC return on equity (Return on average shareholders’ equity is defined as Net income divided by average shareholders’ equity, averaged between the beginning and ending balance over a rolling 12-month period) was 33.9% in FY16 and has dribbled down to 11.22% trailing twelve months, suggesting that income growth is slowing. But that’s not the case, shareholder equity was $6.4b in FY 2017 and is now $38.8bn (FY 2022). Meanwhile Net Income has risen from $1.59bn in FY 2017 to $3.51bn in FY2022.
–Revenue was $6,232m in FY16 and $8,614m in FY2022
–Guidance for 2023 is a growth of mid-single-digits versus core adjusted diluted EPS of 3.77 in 2022.

I believe CPKC will outpace CNR in terms of EPS growth, operational efficiency and overall shareholder return. With its new merger, it will have access to Mexico’s ports and heartland, providing an opportunity for Mexican-based businesses and near-shoring companies to ship products more cheaply into the United States and Canada through this new synergized railway network.

Disclaimer: I do not own any shares of CNR or CP