The Gemini Report – Investment Deep Dives

Canadian National Railway Company (CNI): An In-depth Investment Analysis

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The Gemini Report - Investment Deep Dives
The Gemini Report – Investment Deep Dives
Canadian National Railway Company (CNI): An In-depth Investment Analysis
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I. Executive Summary

This report provides a comprehensive fundamental analysis of Canadian National Railway Company (CNI), a premier Class I freight railroad in North America. CNI is distinguished by its unique and extensive tri-coastal network, a strategic asset connecting ports on the Atlantic, Pacific, and U.S. Gulf Coasts. This network has historically supported a robust and diversified business model, positioning CNI as a critical artery for North American and international trade.

For years, CNI was the undisputed leader in operational efficiency, pioneering the principles of Precision Scheduled Railroading (PSR) to deliver industry-best operating ratios and strong profitability. However, recent performance indicates this operational gap has narrowed, with key peers matching or exceeding CNI’s efficiency metrics. The company’s recent financial results have been impacted by a confluence of macroeconomic headwinds, including industrial production softness and persistent inflation, as well as acute industry-specific disruptions such as widespread labor disputes and severe weather events in 2024.

Strategically, CNI is positioned to capitalize on long-term growth in intermodal freight, driven by e-commerce and the secular trend of truck-to-rail conversion. Its network provides a time-advantaged corridor for Asian imports into the U.S. heartland. However, the competitive landscape has been fundamentally altered by the 2023 merger of Canadian Pacific and Kansas City Southern, which created CPKC, the first and only single-line railroad connecting Canada, the U.S., and Mexico. This new entity presents a formidable challenge to CNI’s lucrative north-south franchise.

Financially, CNI maintains a solid balance sheet and a disciplined capital allocation strategy, characterized by significant network reinvestment and a consistent record of returning capital to shareholders through dividends and buybacks. The central investment question is whether CNI’s current market valuation adequately reflects the enduring strategic value of its unique network and its long-term growth prospects, when weighed against the cyclical nature of the rail industry, heightened competitive intensity, and recent operational volatility.

II. Industry Dynamics & Competitive Landscape: An Entrenched Oligopoly

North American Freight Rail Industry Structure

The North American freight rail industry is a mature, highly concentrated oligopoly dominated by a small number of “Class I” railroads.1 These carriers are designated by the U.S. Surface Transportation Board (STB) based on annual revenue thresholds, which stood at over $1 billion as of 2023.2 The six major freight railroads are Canadian National Railway (CNI), Canadian Pacific Kansas City (CPKC), Union Pacific (UNP), CSX Corporation (CSX), Norfolk Southern Corporation (NSC), and the privately-held BNSF Railway, owned by Berkshire Hathaway.1 Together, these companies operate an integrated network of nearly 140,000 miles, forming the backbone of the continent’s supply chain.4

This oligopolistic structure is the defining characteristic of the industry’s economics. Unlike competitors in trucking and shipping that rely on publicly funded infrastructure, freight railroads operate on a network they overwhelmingly own, build, and maintain themselves.4 This self-funding model, while requiring immense and continuous capital investment—averaging $23 billion annually, or about 18.4% of industry revenue—forms the bedrock of a powerful competitive moat.4 The capital intensity creates a nearly insurmountable barrier to entry, as no new entrant could feasibly replicate a 20,000-mile network. This control over the “road” itself allows incumbents to strategically invest in capacity and efficiency to enhance their competitive position, solidifying their market power and enabling significant pricing discipline. As a result, the industry is a vital and profitable component of the North American economy, moving over 25% of U.S. freight by ton-miles and generating close to $80 billion in annual revenue.4

Regulatory Environment

The industry operates within a complex regulatory framework overseen by national bodies in the U.S. and Canada. In the United States, the Surface Transportation Board (STB) provides economic regulation, while the Federal Railroad Administration (FRA) governs safety.7 The STB’s authority is largely defined by the Staggers Rail Act of 1980, which deregulated the industry and allowed market forces to establish rates for transportation. However, the STB retains critical oversight powers, including the ability to impose maximum rates in situations where a railroad is deemed to have “market dominance” and to review all mergers and line acquisitions.7

In Canada, the Canadian Transportation Agency (CTA) and Transport Canada serve similar economic and safety oversight roles, respectively.10 The CTA’s mandate includes issuing operating licenses, resolving disputes, and approving line construction.10 Notably, it also has direct rate-setting authority in specific areas, such as determining interswitching rates and the Maximum Revenue Entitlement (MRE) for the movement of Western Canadian grain, a key commodity for both CNI and CPKC.10

This dual-regulator environment creates unique complexities and risks for the Canadian railroads. The STB and CTA have different historical priorities; the STB has recently focused on increasing rail-to-rail competition, while the CTA has a history of direct intervention on specific commodity flows deemed vital to the national interest. This divergence creates an asymmetric risk profile for CNI and CPKC compared to their U.S.-only peers. A significant regulatory change in one country could disproportionately affect a railroad’s most profitable routes. For instance, the STB’s ongoing consideration of “forced switching” (also known as reciprocal switching) represents a material threat.9 If enacted, such a rule could compel a railroad to move a shipper’s traffic to a nearby competing railroad at a regulated rate, undermining the incumbent’s network efficiencies and pricing power in captive markets. The uncertainty around such regulations can influence long-term capital allocation, as railroads may favor investments in jurisdictions with a more predictable regulatory outlook.

Competitive Threats from Other Modes

The primary competitors to freight rail are trucking and pipelines, with each mode having distinct advantages depending on the commodity, distance, and service requirements.

  • Trucking: Trucks offer superior flexibility, greater speed over shorter distances, and crucial last-mile delivery capabilities. This makes trucking the dominant mode for time-sensitive, high-value, and smaller-volume shipments.12 The key battleground is the long-haul intermodal market, where rail’s significant cost and fuel efficiency advantages compete directly with trucking’s service reliability. For bulk commodities, rail is substantially more cost-effective; one railcar can carry the freight equivalent of four truckloads.12
  • Pipelines: For liquid bulk commodities like crude oil and refined products, pipelines are the most cost-effective mode of transport.14 However, they are highly inflexible, with fixed origin and destination points, long construction lead times, and significant upfront capital commitments.15 Rail provides a crucial, more flexible alternative, particularly for connecting new production sources, such as the Bakken shale formation, to refineries before dedicated pipeline infrastructure can be built.16 Shippers can utilize rail with shorter-term contracts, offering an advantage in volatile commodity markets.15

A critical trend reshaping North American trade flows is the “onshoring” or “nearshoring” of manufacturing from Asia to Mexico. In 2023, Mexico surpassed China as the top trading partner for the United States, driving substantial growth in north-south freight corridors.17 This secular shift has profoundly altered the competitive landscape, particularly following the landmark merger of Canadian Pacific and Kansas City Southern. The 2023 creation of CPKC established the first and only single-line rail network connecting Canada, the U.S., and Mexico.19 Previously, freight moving between Canada and Mexico required a handoff—or interchange—between at least two different railroads, adding time, cost, and logistical complexity. CPKC can now offer a seamless, single-carrier service, a direct competitive threat to CNI’s and UNP’s established north-south automotive and intermodal franchises. This has forced a strategic response, shifting the competitive dynamic from one of individual networks to one of strategic alliances. The success of CNI’s partnerships, such as its “Falcon Premium” intermodal service with Union Pacific, in providing a similarly seamless, “truck-like” service will be a determining factor in defending and growing market share in this critical growth segment.18

CNI’s Unique Geographic Position

Canadian National’s network spans approximately 20,000 route-miles across Canada and the United States.20 The network’s defining characteristic and primary strategic asset is its “tri-coastal” reach. It is the only railroad connecting ports on the Atlantic (Halifax, Montreal), Pacific (Vancouver, Prince Rupert), and U.S. Gulf Coasts (New Orleans, Mobile).22 This unparalleled geographic scope provides CNI with a highly diversified revenue base, insulating it from regional economic downturns or port disruptions. It is particularly advantageous for international trade. For example, the Port of Prince Rupert is up to three days closer by sea to major Asian ports than its counterparts in Southern California, giving CNI a significant time-to-market advantage for moving Asian imports into the U.S. Midwest via its direct route to Chicago.

Table 1: Class I Railroad Peer Group Comparison (FY 2024 Data)

CompanyNetwork Route MilesGeographic FocusMarket Cap (Jul 2025, USD)FY 2024 Revenue (USD)FY 2024 Employees
CNI~20,000 20Tri-coastal Canada/U.S.$58.2B 24$12.4B 2424,671 25
CPKC~20,000 19Canada/U.S./Mexico$69.7B 24$10.6B 2419,992 26
UNP~32,200 27U.S. West & Central$137.0B 24$24.3B 2829,929 26
CSX~20,000 29U.S. East$66.6B 24$14.5B 3023,500 26
NSC~19,300 31U.S. East$64.6B 24$12.1B 3219,600 26
BNSF~32,500 33U.S. West & CentralPrivately HeldN/AN/A

Note: Revenue and Market Cap figures are approximate and based on available data from mid-2025. BNSF is a wholly-owned subsidiary of Berkshire Hathaway.

III. Company’s Competitive Position & Strategic Moat

Network Analysis: The Tri-Coastal Advantage in Detail

CNI’s strategic moat is fundamentally rooted in the unique geography of its network. The east-west transcontinental line across Canada, combined with a north-south spine extending down the Mississippi River valley, creates a franchise that cannot be replicated.

The network provides the most direct rail route between the Canadian West Coast ports of Vancouver and Prince Rupert and key U.S. industrial and consumer hubs like Chicago, Detroit, and Memphis.22 This corridor is a critical advantage for international intermodal freight. Shippers can land containers in Prince Rupert and have them reach Chicago via CNI’s network faster and more reliably than if they were shipped through the congested ports of Los Angeles/Long Beach and moved inland on UNP or BNSF networks. This makes CNI a vital and often preferred artery for the high-value Asia-North America supply chain.

Simultaneously, the network’s extension to the U.S. Gulf Coast serves as a “pipeline on rails” for Canadian bulk commodities. It provides Canadian producers of grain, potash, crude oil, and fertilizers with efficient, single-line access to export terminals in New Orleans and Mobile, allowing them to reach global markets and diversify away from a sole reliance on Pacific or Atlantic routes.22 This north-south spine is a durable competitive advantage that differentiates CNI from all other North American railroads.

Operational Efficiency: The Pursuit of Precision Scheduled Railroading (PSR)

The rail industry has been transformed by the broad adoption of Precision Scheduled Railroading (PSR), an operational philosophy focused on maximizing asset utilization and efficiency. PSR prioritizes running trains on a fixed schedule rather than waiting to build long trains, which improves key metrics such as train velocity (speed), terminal dwell (time cars spend idle in yards), and fuel efficiency. The ultimate measure of a railroad’s efficiency is its Operating Ratio (OR)—operating expenses as a percentage of revenue, where a lower number is better.

CNI was a pioneer of PSR under former CEO Hunter Harrison and for years delivered an industry-leading OR, which became a core part of its investment identity. In 2005, its OR of 64.4% was more than 11 percentage points better than its closest competitor.34 However, this clear operational superiority has eroded as peers have successfully implemented their own versions of PSR. For the full year 2024, CNI’s adjusted OR was 62.9%.25 This figure, while still strong, was higher than Union Pacific’s 59.9% for the same period and CPKC’s core adjusted OR of 60.7% for the second quarter of 2025.28

The convergence of operating ratios across the industry suggests that the initial, dramatic efficiency gains from PSR implementation have largely been realized. Further improvements are now incremental and more difficult to achieve, leading to a state of “peak PSR” where it is challenging for any single operator to maintain a significant, sustainable cost advantage through operations alone. Consequently, the basis of competition is shifting. With all major railroads operating at a similarly high level of efficiency, the primary differentiating factors for value creation become the quality and strategic positioning of the network itself and the ability to provide superior, reliable service to win price-sensitive freight. CNI’s investment case now hinges more on its ability to monetize its unique tri-coastal network and less on simply being the lowest-cost operator.

Management Quality and Strategic Execution

Tracy Robinson was appointed President and CEO on February 28, 2022.37 Her background is notable, with 27 years of deep industry experience at rival Canadian Pacific, where she held executive roles across the commercial, finance, and operations functions.37 The appointment of a seasoned executive from a direct competitor signals a potential shift in strategy and a renewed focus on competitive intensity. Her balanced experience across both generating revenue and controlling costs suggests a holistic approach to driving profitable growth. Public statements from the management team consistently emphasize a commitment to disciplined execution of the operating plan, building network resiliency, and delivering shareholder value.39

Technology and Digitalization

CNI, like its peers, is actively investing in technology to enhance safety, service, and efficiency. Key initiatives include the deployment of automated track and equipment inspection systems, the use of predictive analytics to forecast maintenance needs for locomotives, and the development of digital platforms to provide customers with greater shipment visibility and easier access to services.41 In the modern rail industry, such technology investments are now considered essential for maintaining a competitive service offering. The key differentiator is not the investment itself, but how effectively these tools are integrated to produce tangible improvements in service reliability, asset utilization, and safety, which ultimately drive down the operating ratio and improve customer retention.

Table 2: Comparative Operational Efficiency Metrics (2022-2024)

MetricCompany202220232024
Operating Ratio (Adjusted, %)CNI60.0% 2560.8% 2562.9% 25
CPKC61.4% (CP)62.1% (CP)N/A (Full Year)
UNP60.1%62.3%59.9% 28
CSX60.0%62.4%36.8% 30
NSC62.3% 4267.4% 3265.8% 32
Train Velocity (mph)CNI18.9 2519.8 2518.9 25
UNP204 (dmpc)208 (dmpc)208 (dmpc) 28
CSXN/AN/A18.7 43
NSCN/AN/A22.2 44
Terminal Dwell (hours)CNI7.6 257.0 257.0 25
UNP22.321.620.8 45
CSXN/AN/A9.7 43
NSCN/AN/A22.1 44

Note: Data is based on full-year results where available. Definitions and calculation methods for velocity and dwell can vary by railroad. UNP reports velocity in daily miles per car (dmpc). CPKC data for 2022-23 represents legacy CP only. Full-year 2024 data for CPKC was not available. CSX’s 2024 OR is adjusted.

IV. Financial Performance & Growth Analysis

Revenue Growth Drivers by Segment

For the full year 2024, CNI reported total revenues of C17.05billion,amodestincreaseof13.76 billion), Grain and Fertilizers (C3.42billion),andPetroleumandChemicals(C3.41 billion), collectively accounting for over 60% of total freight revenues.35

In 2024, the primary growth drivers were Petroleum and Chemicals, with revenues increasing 7%, and Grain and Fertilizers, up 5%. The growth in Petroleum and Chemicals underscores the strategic value of CNI’s network in connecting Western Canadian energy production to U.S. refineries and export markets. Conversely, several segments faced headwinds. Coal revenue declined by 9%, reflecting the secular decline in thermal coal demand. Automotive revenue fell by 5%, and Intermodal revenue decreased by 2%, the latter being a point of concern given its strategic importance and reflecting both macroeconomic softness in consumer goods and potential competitive pressures.35

Margin Trends and Operational Leverage

CNI’s profitability came under pressure in 2024. The company’s adjusted operating ratio increased to 62.9%, a deterioration of 210 basis points from 60.8% in 2023.25 This indicates that operating expenses grew at a faster pace than revenues, a sign of negative operating leverage. The margin compression was driven by a combination of factors, including persistent cost inflation for labor, fuel, and materials, as well as operational inefficiencies stemming from network disruptions caused by labor actions and severe weather.23 While CNI’s peer group also faced these inflationary pressures, CNI’s margin performance lagged some key competitors, reinforcing the observation that its historical operational leadership has diminished.

Free Cash Flow and Balance Sheet

CNI has a strong track record of cash generation, though performance weakened in 2024. The company generated C3.09billioninfreecashflow,asignificantdecreasefromC3.89 billion in 2023.25 This decline reflects lower net income and sustained high levels of capital investment. Concurrently, financial leverage increased, with the adjusted debt-to-adjusted EBITDA ratio rising to 2.60x from 2.25x in the prior year.25 While the balance sheet remains solid and the leverage is manageable, these trends point to reduced financial flexibility compared to the previous year and warrant monitoring.

Table 3: CNI Revenue and Growth by Commodity (2022-2024, C$ Millions)

Commodity Group2022 Revenue2023 Revenue2024 Revenue2023 YoY Growth2024 YoY Growth
Petroleum & Chemicals$3,059$3,195$3,4144.4%6.8%
Metals & Minerals$1,972$2,048$2,0483.9%0.0%
Forest Products$2,044$1,943$1,931-4.9%-0.6%
Coal$771$1,017$92931.9%-8.7%
Grain & Fertilizers$2,985$3,265$3,4229.4%4.8%
Intermodal$4,386$3,823$3,757-12.8%-1.7%
Automotive$952$945$894-0.7%-5.4%
Total Freight Revenues$16,169$16,236$16,3950.4%1.0%

Source: CNI Quarterly Reviews and Annual Reports. Data for 2022-2024 from.35

Table 4: Peer Revenue Mix Comparison (FY 2024, % of Total Freight Revenue)

Commodity GroupCNIUNPCSXNSC
Merchandise/Industrial/Bulk65.2%53.0%61.2%N/A
Intermodal22.9%20.7%14.1%N/A
Coal5.7%6.5%15.5%N/A
Other6.2%19.8%9.2%N/A

Source: Company filings.30 Note: Commodity groupings are harmonized for comparability. NSC did not provide a full-year 2024 segment breakdown. UNP’s “Other” includes Automotive and Forest Products. CSX’s “Other” includes Trucking and Other revenues.

V. Capital Allocation Strategy

Capital Expenditures (Capex)

CNI maintains a disciplined and substantial capital investment program, which is a fundamental requirement for a Class I railroad. The company’s stated policy is to invest approximately 17% of its annual revenues back into the business.48 In 2024, this amounted to a capital program of approximately C$3.5 billion.49 A significant portion of this budget, often over 50%, is dedicated to maintenance capex—the replacement of rail, ties, bridge improvements, and other essential infrastructure work.49 This consistent focus on maintenance is critical for ensuring the safety, integrity, and reliability of the network, which underpins the company’s core service offering. The remainder of the capital budget is allocated to growth and productivity initiatives, such as expanding intermodal terminal capacity, adding sidings to increase network fluidity, acquiring new fuel-efficient locomotives, and investing in technology.41

Dividends and Share Repurchases

CNI has demonstrated a strong and consistent commitment to returning capital to shareholders. The company has a long-standing policy of annual dividend increases, having raised its dividend for 28 consecutive years.26 For 2024, the dividend per share was C

3.38,anincreasefromC3.16 in 2023.25 The dividend is supported by a sustainable payout ratio, which was approximately 48% of earnings in the most recent period 26, leaving ample cash flow for reinvestment and other capital returns. In addition to dividends, CNI actively utilizes share repurchase programs. In 2024, the company bought back C$2.65 billion of its own shares.25 This balanced approach of a steadily growing dividend and opportunistic buybacks provides a significant component of total shareholder return.

M&A Strategy

Historically, CNI has pursued a strategy of targeted, bolt-on acquisitions to expand its network reach and enhance its service capabilities. Major historical acquisitions include the Illinois Central Railroad in 1998, which gave CNI its crucial access to the U.S. Gulf Coast, as well as the Wisconsin Central and the Elgin, Joliet and Eastern (EJ&E) railways, the latter of which was acquired to alleviate rail congestion in the critical Chicago hub.20 This approach continued recently with the acquisition of the Iowa Northern Railway (IANR), a short-line railroad specializing in the transport of grain, ethanol, and other biofuels. The acquisition, approved by the STB in January 2025, strengthens CNI’s footprint in the U.S. agricultural heartland.20 CNI’s M&A strategy appears focused on strategic enhancements to its existing network rather than the type of large-scale, transformative merger pursued by its rival, CPKC.

Table 5: Capital Allocation Comparison (FY 2024)

MetricCNIUNPCSXNSC
Capex as % of Revenue~20.5% 2514.0% 28N/AN/A
Dividend Payout Ratio48.2% 2646.8% 2630.1% 2644.0% 26
Adjusted Debt-to-EBITDA2.60x 25N/AN/AN/A

Source: Company filings. Data is for the most recent full fiscal year available. Payout ratios are based on GAAP earnings.

VI. Growth Opportunities & Strategic Initiatives

Intermodal Growth and E-commerce Tailwinds

The most significant long-term organic growth driver for CNI and the broader rail industry is the intermodal segment. Intermodal transportation, the movement of shipping containers and truck trailers by rail, has surpassed coal as a primary revenue source for Class I railroads.52 This growth is fueled by several powerful trends: international trade, the economic and environmental advantages of converting long-haul freight from truck to rail, and the relentless rise of e-commerce.18 CNI is exceptionally well-positioned in this market, holding a dominant 46% share of Canadian intermodal traffic.54 The company is making strategic investments to capture this demand, including the expansion of its Chicago Logistics Hub and the acquisition of new intermodal containers.41

However, the growth of e-commerce presents both an opportunity and a significant challenge. While it drives higher volumes, e-commerce has conditioned consumers and businesses to expect faster and more reliable delivery, areas where trucking has a traditional advantage.55 To compete effectively for this high-value freight, railroads must offer “truck-like” service. This requires more than just running faster trains; it demands a radical improvement in the efficiency of the entire logistics chain. Success hinges on minimizing the time containers spend idle in terminals (dwell time) and achieving seamless integration with drayage trucking partners for the first and last miles of the journey. The competitive battle for intermodal market share is increasingly being fought not on the mainlines, but at the interchange points and in the logistics parks surrounding major urban centers. CNI’s investments in terminal capacity and technology are a direct acknowledgment of this strategic imperative.

Volume Growth in Key Commodity Segments

Beyond intermodal, CNI’s network is uniquely aligned with major Canadian natural resource production areas, positioning it to benefit from growing global demand for these commodities. The company is a primary transporter of Western Canadian grain and potash, moving these products to ports on both the Pacific and Gulf coasts for export.39 The recent acquisition of the Iowa Northern Railway deepens its reach into the U.S. agricultural heartland, strengthening its franchise in grain and biofuels.20 CNI is also a key transporter of energy products, including liquefied petroleum gases (LPGs), refined fuels, and crude oil, providing a vital link between landlocked production and coastal export terminals.

Positioning for the Energy Transition

The global shift toward a lower-carbon economy presents a mixed outlook for the rail industry. The primary headwind is the secular decline of thermal coal, which has been a historically important commodity. CNI’s coal revenues fell 9% in 2024, reflecting this trend.35 However, the energy transition also creates new opportunities. Railroads are essential for transporting the massive components required for renewable energy projects, such as wind turbine blades and towers. They are also positioned to be key transporters of emerging energy sources like biofuels and hydrogen.56 CNI’s ability to pivot its service offerings to capture these new green energy supply chains will be critical to offsetting the decline in its coal franchise. The long-term net impact of this transition remains an area of uncertainty for the entire industry.

VII. Recent Developments & Industry Headwinds (2023-2025)

Impact of Economic Cycles and Inflation

The freight rail industry is highly cyclical, with volumes and revenues closely tied to the health of the broader economy. Recent periods have been characterized by a challenging macroeconomic environment. Persistent contraction in the manufacturing sector, as indicated by the ISM Manufacturing PMI remaining below the expansionary threshold of 50 for most of the last two years, has put pressure on rail volumes, particularly in industrial and construction-related segments.58 CNI’s 2024 results reflected these headwinds, with weaker-than-expected demand for forest products and metals.23 Concurrently, high inflation has driven up key operating costs, including fuel, labor, and materials, contributing to the margin compression seen across the industry.59 A key mitigating factor for railroads has been their ability to implement contractual price increases that run above the rate of rail-specific cost inflation, a testament to their strong pricing power.39

Labor Relations and Operational Disruptions

Labor relations represent a significant and recurring operational risk for Canadian railroads. In August 2024, both CNI and CPKC experienced a brief but highly disruptive work stoppage stemming from a labor dispute with the Teamsters Canada Rail Conference.60 This was the first simultaneous shutdown of both major Canadian railways. The stoppage was estimated to cost the Canadian economy up to C$341 million per day and caused significant backlogs at ports and across the supply chain.60 In addition to this direct labor action, CNI’s operations in the fourth quarter of 2024 were materially impacted by separate labor disputes that closed ports in British Columbia and Quebec.46 Such disruptions not only halt revenue generation but also damage the reputation of the Canadian supply chain, leading some shippers to divert cargo through U.S. routes, with the risk that some of this traffic may not return.

Supply Chain and Weather Events

Railroad operations are inherently exposed to weather-related disruptions. CNI’s performance in 2024 was significantly hampered by widespread wildfires across Canada and a prolonged period of extreme cold in the western part of its network during the fourth quarter.23 Extreme cold forces railroads to operate shorter trains to ensure the integrity of the air brake systems, which reduces network capacity and can lead to significant freight backlogs. CNI’s extensive network across northern climates makes it particularly vulnerable to these events. The company’s strategy of investing in network resiliency—such as adding sections of double track and extending sidings—is critical to mitigating the operational and financial impact of these unavoidable disruptions.

VIII. Valuation Analysis

Valuation Multiples vs. Peers and History

An analysis of CNI’s valuation multiples suggests that the market is pricing the company as a high-quality but no longer premium-valued railroad. As of mid-2025, CNI traded at a trailing twelve-month (TTM) Price-to-Earnings (P/E) ratio of approximately 18.2x to 20.8x.61 This is below its 5-year average P/E of 21.7x, indicating a contraction in its historical valuation.62 When compared to its peers, CNI’s P/E ratio is generally in line with or slightly below that of U.S. railroads like Union Pacific (~20.6x) and CSX (~20.5x), but it trades at a significant discount to its primary Canadian rival, CPKC, which commanded a P/E ratio of around 27x.26 This substantial premium for CPKC likely reflects investor optimism regarding the revenue and cost synergies expected from its transformative merger with Kansas City Southern.

On an Enterprise Value to EBITDA (EV/EBITDA) basis, CNI trades in a range of approximately 11.4x to 13.1x.61 This metric, which accounts for debt, also places CNI within the broader peer group range. Overall, the valuation suggests that the market has fully priced in the erosion of CNI’s historical operational superiority and is now valuing it more in line with its North American peers, with the exception of the merger-premium-driven valuation of CPKC.

Dividend Yield and Shareholder Return

CNI’s dividend provides a solid and reliable component of total shareholder return. As of mid-2025, its forward dividend yield was approximately 2.4% to 2.7%.61 This yield is competitive within the peer group, notably higher than CPKC’s (~0.9%) and comparable to UNP’s (~2.5%).26 The dividend is well-supported by a sustainable payout ratio of under 50% of earnings, indicating a strong capacity to continue its long-standing policy of annual dividend increases.26

Valuation vs. Growth and Returns

Metrics that incorporate growth expectations and capital efficiency provide a more nuanced valuation picture. CNI’s Price/Earnings to Growth (PEG) ratio is estimated to be in the range of 2.0x to 2.7x.26 A PEG ratio significantly above 1.0x can suggest that a stock’s price may be high relative to its expected near-term earnings growth. Furthermore, CNI’s adjusted Return on Invested Capital (ROIC), a key measure of capital efficiency, was 13.1% in 2024.25 While this is a healthy return that exceeds its cost of capital, it is below the company’s historical highs and lags some peers, indicating a potential decline in capital efficiency that could be contributing to the compression of its valuation multiple.

Table 6: Comparative Valuation Metrics (as of mid-2025)

MetricCNI (Current)CNI (5-Yr Avg)CPKCUNPCSXNSC
P/E Ratio (TTM)18.2x 6221.7x 6225.7x 2419.9x 2422.0x 2419.6x 24
EV/EBITDA (TTM)13.1x 61N/AN/AN/AN/AN/A
Price/Book (TTM)3.9x 65~4.5xN/A8.0x 645.3x 644.5x 66
Dividend Yield (Fwd)2.7% 262.0% 260.9% 262.5% 261.5% 261.9% 26
FCF Yield (TTM)4.0% 62N/AN/AN/AN/AN/A

Source: Financial data providers and company filings. 5-Yr Avg P/B for CNI is an approximation based on historical data.

IX. Risk Assessment

Operational Risks

The primary operational risks inherent to the railroad industry are derailments, network congestion, and weather-related disruptions. CNI’s 2024 performance starkly illustrated its vulnerability to weather, with extreme cold and wildfires causing significant network slowdowns and backlogs.46 Safety is paramount, and while CNI’s overall accident rate improved in 2024, its personal injury frequency rate increased, highlighting an area for continued focus.50 The increasing connectivity of operational technology (OT) systems to corporate networks and the internet also introduces significant cybersecurity risks, as these systems control the core functions of the railway.68

Financial and Economic Risks

As a critical component of the economic supply chain, CNI’s business is inherently cyclical. Its freight volumes and revenues are highly correlated with the health of the North American and global economies, particularly with levels of industrial production and consumer spending.23 A recession would almost certainly lead to a decline in freight demand and pressure on financial results. The company is also exposed to fluctuations in commodity prices, which affect the volumes of goods like crude oil, grain, and metals. Furthermore, as a Canadian company reporting in Canadian dollars but with significant U.S. operations and debt, it is exposed to currency exchange rate volatility between the USD and CAD. Finally, changes in interest rates can impact the cost of servicing its substantial debt load.

Regulatory and Labor Risks

The regulatory environment presents a significant and unpredictable risk. Potential adverse regulatory actions from the STB in the U.S., such as the imposition of forced switching, could fundamentally alter the competitive dynamics of the industry and erode pricing power.9 In Canada, changes to the CTA’s regulations, particularly regarding the grain revenue cap, could also impact profitability. Labor relations are another major risk factor. The vast majority of CNI’s workforce is unionized, and as the 2024 work stoppage demonstrated, labor disputes can lead to complete network shutdowns, causing severe financial and reputational damage.60

Competitive Risks

The most significant strategic risk facing CNI today is the enhanced competitive offering from the newly merged CPKC. CPKC’s single-line network from Canada to Mexico presents a powerful service advantage for the growing north-south trade flows, directly challenging CNI’s intermodal and automotive businesses.18 To defend its market share, CNI must successfully execute on its strategic partnerships, such as the Falcon Premium service with UNP, and consistently deliver superior service reliability to its customers. Failure to do so could result in a long-term loss of volume on these critical routes.

X. Management & Corporate Governance

Management Team Evaluation

Canadian National’s senior leadership team is comprised of seasoned executives with extensive industry experience. CEO Tracy Robinson joined in 2022 after a 27-year career at rival Canadian Pacific, bringing a deep understanding of PSR and a unique competitive perspective to the role.37 CFO Ghislain Houle is a long-tenured CN executive, having joined in 1997 and served in numerous senior finance and strategic planning roles before his appointment as CFO in 2016.37 The operational leadership is split between a Chief Field Operating Officer and a Chief Network Operating Officer, both with decades of railroad experience.37 The management team appears highly qualified and deeply experienced. The key determinant of their success will be their ability to execute on the company’s strategic plan to drive growth while navigating a more intense competitive environment and restoring CNI’s historical leadership in operational efficiency.

Corporate Governance Practices and Shareholder Alignment

CNI’s corporate governance framework appears robust and generally aligned with shareholder interests, as outlined in its 2025 Management Information Circular.69 The Board of Directors is led by an independent Chair, and all directors, with the exception of the CEO, are independent. The board has also implemented policies on term limits and retirement age to ensure regular refreshment.69

The executive compensation program is heavily weighted towards “at-risk,” performance-based pay, which aligns management’s financial outcomes with those of shareholders. For 2024, approximately 82.4% of the Named Executive Officers’ target compensation was variable and tied to performance.69 The Annual Incentive Bonus Plan is based on a scorecard of financial (70% weight), strategic (20% weight), and safety (10% weight) metrics.69 Long-term incentives consist of a mix of performance share units (PSUs) and stock options, with PSU vesting tied to multi-year targets for Return on Invested Capital (ROIC) and relative Total Shareholder Return (TSR) against a transportation index.69 Furthermore, executives are subject to significant share ownership requirements and a clawback policy, which strengthens alignment and discourages excessive risk-taking.69

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