Canadian National Railway (TSX:CNR) stock has lost nearly 9.3% of its value in the last six months to currently trade at $148.58 per share, trimming its market cap to $97.4 billion. With this, CNR stock has underperformed the TSX Composite benchmark, which has seen 4.6% value erosion during the same period.
Before we take a closer look at its long-term fundamental outlook to find out where CNR stock could be after five years, letâs take a closer look at some recent developments that could be hurting its share price movement of late.
Why CNR stock is falling in 2023
Before diving by 7.6% in 2023, CNR stock delivered positive returns for four consecutive years, supported by consistency in its financial growth. To give you an idea, despite facing the global pandemic-driven operational challenges, the companyâs total revenue rose 31% in the five years between 2017 and 2022. Moreover, its adjusted yearly earnings surged 49% during the same five years, reflecting the companyâs ability to continue improving its profitability, even in difficult operating environments.
After starting 2023 on a strong note by posting a solid 38% YoY (year-over-year) growth in its adjusted earnings in the first quarter, CNRâs top and bottom lines fell in the second quarter. This decline was due to lower volumes of intermodal, crude oil, U.S. grain exports, and forest products, which were affected by several external factors, including Canadian wildfires and lower ancillary services.
The challenges it faced in recent months forced the company to trim its financial outlook for the full year 2023, which explains why CNR stock is underperforming the broader market this year.
Where will CNR Stock be in five years?
Even as these largely temporary negative factors affected its financial growth last quarter, CNRâs revenue in the first half of 2023 has already risen by nearly 4%, and its adjusted earnings have grown by more than 10% YoY. While slowing economic growth and business activity might affect its financial growth in the short term, CNRâs well-diversified business model and robust balance sheet should ensure that its long-term growth outlook largely remains unaffected by these ongoing challenges and it navigates the ongoing period of economic uncertainty without big worries.
Moreover, its managementâs focus on accelerating sustainable and profitable business growth in the coming years by improving efficiencies, deploying technology, and pursuing consumer product and rail-centric supply chain organic opportunities makes its long-term financial growth outlook brighter. Given that, I expect its share prices to witness a sharp recovery as soon as the ongoing macroeconomic challenges gradually subside in the coming years.
Itâs important to note that CNR is not the kind of stock that can help you get rich overnight by doubling or tripling in value quickly. Nonetheless, it could prove to be your portfolioâs one of the most reliable Canadian dividend stocks if you want to earn safe and steady returns on investments in the long run. It offers a 2.1% annualized dividend yield at the current market price.
Despite facing weakness in 2023, CNR stock has yielded about 34% positive return (excluding its dividends) in the last five years. Although itâs nearly impossible for anyone to predict where exactly CNR stock will trade five years from now, I find it undervalued at the current market price based on its long-term fundamentals. Thatâs why I wouldnât be surprised if it manages to deliver much higher returns in the next five years than what it has in the last five years.
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* Returns as of 10/10/23
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