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Railway earnings drag expected in short term
Source: Financial Post
Published: March 17th 2008
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Harsh winter weather, a soaring loonie, and high fuel prices are expected to drag on the earnings of the country’s largest railways in the first part of this year, according to David Newman, National Bank Financial analyst.

He has reduced his short-term earnings forecast for both Canadian National Railway Co. and Canadian Pacific Railway Ltd. accordingly.

Mr. Newman said he now expects CN to turn in 60˘ earnings per share in the first quarter, down from his previous estimate of 67˘ and the Street's consensus of 71˘. He notes that CN turned in a 63˘ earnings per share for the same period last year, which included a 7˘ hit from a strike by 2,800 of its yard workers and conductors.

He did, however, maintain his “outperform” rating on the stock, although his price target dropped to $54 a share from $55.

For CP, Mr. Newman reduced his earnings estimate to 65˘ a share, down from his previous estimate of 83˘ and the Street's estimates of 85˘ a share. He noted that yields for CP’s coal shipments from the Elk Valley will likely be under pressure as coal rates dropped by up to 9% last year.

In addition, he said the recently announced grain revenue caps hit Canada’s No. 2 railway harder than expected.

He maintained his “sector perform” rating on the stock, but dropped his price target to $67 from $69 a share.

“We continue to like the long-term fundamental rail story,” he added.



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