Canadian National Railway Company CNI is facing significant challenges with escalating operating expenses and weak liquidity, adversely affecting the company’s bottom line and making it an unattractive choice for investors’ portfolios.

Let’s delve deeper.

CNI: Key Risks to Watch

Southward Earnings Estimate Revision: The Zacks Consensus Estimate for the current year earnings has been revised 7.1% downward over the past 60 days. For the next year, the consensus mark for earnings has been revised 7.2% downward in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.

Dim Price Performance: The company’s price trend reveals that its shares have dropped 22.6% over the past year compared with the industry’s 9.5% decline.

Image Source: Zacks Investment Research

Unimpressive Earnings Surprise History: CNI has a discouraging earnings surprise history, having missed the Zacks Consensus Estimate in three of the trailing four quarters and outpaced once. The average miss is 2.5%.

Weak Zacks Rank: CNI currently carries a Zacks Rank #4 (Sell).

Bearish Industry Rank: The industry to which CNI belongs currently has a Zacks Industry Rank of 141 (out of 246). Such an unfavorable rank places it in the bottom 43% of Zacks industries.Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.

A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Reckoning the industry’s performance becomes imperative.

Headwinds: High operating expenses are hurting CNI’s bottom line, challenging its financial stability. The surge in operating expenses was caused by increased labor and fringe benefit expenses and a rise in purchased services and material costs. In the December-end quarter, the total operating expenses rose by 3% year over year.

High labor costs are contributing to the increase in total costs. For example, in the fourth quarter of 2024, labor costs, comprising salaries and benefits, increased 8% year over year and amounted to $883 million.  

Moreover, a debt-laden balance sheet is another concern. CNI exited the December-end quarter with a current ratio (a measure of liquidity) of 0.66. A current ratio of less than 1 is not desirable as it indicates that the company does not have sufficient cash to meet its short-term obligations.

Stocks to Consider

Investors interested in the Zacks Transportation sector may consider Golar LNG Limited GLNG and SkyWest SKYW.

Golar LNG currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  GLNG has an expected earnings growth rate of 16.1% for the current year.

The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average beat of 30.2%. Shares of GLNG have surged 81.7% in the past year.

SkyWest currently sports a Zacks Rank #1 and has an expected earnings growth rate of 16% for the current year.

The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 16.7%. Shares of SKYW have climbed 63.5% in the past year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Canadian National Railway Company (CNI) : Free Stock Analysis Report

SkyWest, Inc. (SKYW) : Free Stock Analysis Report

Golar LNG Limited (GLNG) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research