I was requested to do a quantitative analysis of CNI. It took a little while for me to map this out but here are the results. I will go over a complete review of CNI stock. Fundamentals CNI is one of Canada's leading industries with a solid establishment in the industry. It spans across Canada and the USA and is responsible for a huge portion of Canada's commercial shipments, both important and international exports (delivering directly to and from major costal shipping harbours). CNI was attempting to purchase and take over KSU rail in the US, but have since backed out in favor of letting CP rail have it.
CNI just released its quarterly results which showed some impressive numbers. Summary of these results: - Revenues of C$3,753 million, an increase of C$97 million or three per cent. - Record fourth quarter operating income of C$1,566 million, an increase of 11 per cent, and record fourth quarter adjusted operating income of C$1,579 million, an increase of 12 per cent. - Diluted EPS of C$1.69, an increase of 18 per cent, and adjusted diluted EPS of C$1.71, an increase of 20 per cent. - Operating ratio, defined as operating expenses as a percentage of revenues, of 58.3 per cent, an improvement of 3.1 points, and record fourth quarter adjusted operating ratio of 57.9 per cent, an improvement of 3.5 points.
Full year results (2021): - Revenues of C$14,477 million, an increase of C$658 million or five per cent. - Operating income of C$5,616 million, an increase of 18 per cent, and adjusted operating income of C$5,622 million, an increase of seven per cent. - Diluted EPS of C$6.89, an increase of 38 per cent, and record adjusted diluted EPS of C$5.94, an increase of 12 per cent. - Operating ratio and adjusted operating ratio of 61.2 per cent, an improvement of 4.2 points and 0.7 points respectively. - For the year ended December 31, 2021, after accounting for all direct and incremental expenses as well as income generated from the merger termination fee, CN recorded additional income of C$705 million (C$616 million after-tax) as a result of its strategic decision to bid for KCS. - Record free cash flow for the year ended December 31, 2021 of C$3,296 million compared to C$3,227 million for the same period in 2020. - Return on invested capital (ROIC) of 16.4 per cent, an increase of 3.7 points, and adjusted ROIC of 14.1 per cent, an increase of 0.7 points.
Verdict on Fundamentals: I would say probably hold and buy.
Technicals:
CNI has had healthy growth over its lifetime. It underperformed the S&P over the past 1 year, with an annualized return of around 13% vs S&P's return of 15%. However, YTD it is outperforming the S&P, with a YTD return of 1.42% and the S&P has a loss of 7.2% YTD.
CNI has held up well in the past, especaily during hard economic downturns where it tends to outperform the market. For example, during the 07/08 financial crisis, CNI sustained a loss of roughly 48% (see below).
This is in contrast to the S&P which lost almost 56%. This may seem like a marginal difference, but when its your money being lost, it really isn't.
Furthermore, since its history, CNI has managed to maintain itself above its 100 moving average, only having touched it twice in its lifetime (circled in teal).
As of right now, CNI has filed its gaps. It looks to be forming a head and shoulders type pattern, yet poorly defined. As I see more market downturn coming in the following weeks and months, I am inclined to believe that CNI may want to retest that 100 moving average for a third time in its history.
Based on technicals, I would say hold CNI but maybe not buy it.
Mathematical Mapping
So this took the longest for me to do. Based on the previous 1 year of data, CNI has traded almost linerally and similar to SPY. The chart below shows the histogram for CNI, SPY and TSLA for comparison.
While this is raw data over the past year and I have no corrected it for a normal distribution, you can see it is naturally trading within the parameters of a normal distribution (Shown in red). Compared to TSLA which shows much skewness to the left. This matters because it indicates a stable trading pattern without huge variations up or down. The more skewed the data is (for example, TSLA), the more volatility and dramatic shifts in price are to be expected. This makes CNI an attractive choice to those who do not like to see huge volatility in their investments and instead, steady growth.
Keep in mind, after analysis through Shapiro-Wilk Test, none of these stocks actually can statistically be considered a "normally distributed" dataset (Shaprio-Wilk significance of 0,000). But this is true for most stocks without some kind of manual correction and manipulation, which is why I like to look at the histogram and make my own interpretations.
CNI is currently trading +1 standard deviation away from its mean. This is an area I personally like to see stocks trading at. But there is the potential for CNI to regress back towards its mean which is around the 116 range. I think we will see it retrace to this level in the future. Which leads me to the final point in a math model. The regression forecasts.
Regression forecasts for CNI are as follows: Short term: Neutral Long term: Positive
Verdict on Math: I would say absolutely hold, maybe wait to buy.
Overall Impression
I think CNI is a solid stock. If you are invested, I would be keeping this close. If you are not, I would be looking for a buying opportunity.
DISCLAIMER/DISCLOSURE: Please note, I AM NOT A FINANCIAL ANALYST! I am basing this analysis off of what I can see from the chart and on my stats background. I don't know what other criteria financial analysts use in making determinations. Make your own financial decisions based on your personal analysis! Also, I am personally invested in this company.
Thanks a lot for sharing your very detailed analysis of this stock. This stock would be sitting above 130 today but for the drama involving the one of the shareholders. I can understand the possibility of stock price moving downwards due to the uncertain economic environment i.e. inflation, rate hikes.. By any chance, were you able to come up with a regression equation ? Also, are you able to share how you analyse/interpret the above histogram for possible moves ? Thanks again !
Steversteves
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@atosh12, Thanks! I agree, this stock has a lot of potential and I think it will eventually outperform analyst targets ranges. A regression equation is a little bit more of an involved process. I would need to correct the data slightly to make it a bit more evenly distributed and then back test. But I don't think its necessary personally if you are simply investing as these tend to be only good for intra-day trades in my opinion. The histogram is not a great indicator of movement, it just shows that CNI is not experiencing a dramatic influx and outflux of investors (i.e. no heavy selling vs buying vs "pumping") If you look at the Histrogram for TSLA, you will see there is obvious pumping. The accumulation of volume towards its 5 and 25th percentile followed by a complete death of volume towards the right indicates that this stuck pumps and dumps more frequently than CNI and SPY. It essentially just used as a stability indicator. If you are interested in using statistical charts to determine moves, then a standard deviation bell chart would be more usefull. But it requires a bit of technical know how. I have included one of those charts in my RTX post. Take a look at it. I have been on the fence of whether I would do a video to explain how to use it to plan trades. But if you are interested, I can do one for CNI and do a video on it. I have one for Boeing that I actively use daily when placing trades as it works extremely well. So I can do a video demonstration on both of those. These tend to be fairly effective in predicting longer term moves and direction than regression formulas in my experience, and I use it frequently for longer term plays. Let me know if that is something that interests you. Thanks!
atosh12
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@Steversteves, Thanks for your explanations. I did check out your RTX post. It's a really informative post. I appreciate your willingness to make a video on CNI. I feel I would learn something new. Thanks!