Canadian National Railway Is Losing Its Luster to Its Peers. Here’s Why

Canadian National Railway (TSX) looks cheap right now, but its value really depends on how well it can manage costs and keep freight volumes steady in a slower economy. In addition to this, the company has made some questionable calls from a capital allocation standpoint that are certainly concerning.

The stock has dropped about 17% over the past year, hitting a five-year low, and many investors are wondering whether there is opportunity here. Its dividend record and strong network still make it worth keeping an eye on, but there is no doubt this company is struggling.

I think CNR fails to keep up with competitors such as CP Rail, and I think poor management decisions over the last half decade have impacted the company long-term. Operationally, it’s been just fine.

CNR’s business relies heavily on bulk and energy shipments, which have helped offset weaker intermodal demand. That weakness is mostly tied to tariffs and slower cross-border trade.

The company expects mid-single-digit earnings growth this year, below CP Rail’s projections. In addition to this, the bulk of earnings growth over previous years has simply come from buybacks.

Labour disruptions and higher expenses remain the main drag on margins, even as management pours about $3.4 billion into capital projects to maintain efficiency and capacity.

Is this company still a buy, or are investors better off looking towards CP Rail for long-term opportunities? Let’s dig in.

Bulk & Energy Volumes Cushion Intermodal Slowdowns

I see CN’s bulk business doing the heavy lifting right now. Grain and fertilizer shipments remain steady, helped by solid harvests in both Canada and the U.S.

Grain shipments being relatively consistent when other segments, like intermodal, face pressure from trade disputes and weaker merchandise demand is certainly a welcome buffer.

Energy shipments add another layer of support. With oil prices in the US$60–70 per barrel range, crude-by-rail and related traffic are holding up. It’s not booming by any stretch, but it’s enough to offset softness in container volumes (see chart below) tied to global trade uncertainty.

Revenue ton miles (RTMs) grew about 1%, showing that bulk traffic is keeping the network busy even as container demand lags. The company is doing a good job at treading water during a harsh macro environment.

The swing factor is commodity demand. If grain exports stay firm and energy prices remain stable, CN’s bulk strength can keep earnings on track while it waits for consumers to pick the slack up.

But if tariffs expand or industrial output dips, that cushion could thin quickly. For now, CN’s mix looks balanced, bulk and energy doing the work while intermodal catches its breath.

Operating Efficiency Gains Aid Margin, But Execution Risk Persists

Canadian National Railway’s margin story rests on how well it runs its network, not just how much freight it moves.

The latest quarter showed a leaner operation: the operating ratio improved to 61.7%, down from 64% a year earlier, helped by lower fuel costs and tighter crew management.

The company’s cost control stands out. Fuel expenses dropped 25% year over year, and management furloughed over 500 train and engine employees to match volumes.

Those steps trimmed operating expenses by about 5%. It’s a disciplined approach, though one that risks service gaps if demand rebounds faster than expected.

Network velocity is also improving. Car velocity and train speed are rising, signaling better use of assets. And when the freight environment finally improves, this should be an added tailwind.

Faster turns mean fewer idle cars and lower dwell times in yards. That efficiency feeds directly into margin, but it depends on consistent execution across a vast network that still faces congestion in Western Canada.

Capital expenditures remain heavy at roughly CA$3.4 billion for 2025, focused on double-tracking, yard upgrades, and digital optimization. These projects should lift capacity and reliability over time. CN Rail is doing everything right from an operational perspective, it just needs the environment to improve.

Labour & Regulatory Overhangs Keep Investors Wary

Shareholders of Canadian National Railway ultimately need to keep a close eye on labor issues. This is because they shape both costs and reliability. The 2024 lockout involving the Teamsters Canada Rail Conference and Unifor showed how fragile the system can be.

When more than 9,000 workers were locked out, freight movement across Canada nearly stopped. The Canada Industrial Relations Board ordered trains back to work under binding arbitration, but the union challenged that order.

That legal fight still hangs over the company. It signals that future negotiations could again test the balance between worker rights and government intervention.

CN’s workforce is highly unionized, and any new contract must align with updated fatigue and safety rules under federal oversight. These rules now require longer rest periods and stricter scheduling.

They improve safety but also limit flexibility and raise costs.

Regulation adds another layer of pressure. Canada’s growing network of environmental and safety regulations increases compliance costs and slows project approvals.

Rising regulatory requirements have already weighed on national productivity and business investment, as seen in studies on Canada’s regulatory overburden.

For investors, that mix of labour tension and heavy oversight keeps risk elevated. It doesn’t break CN’s long-term thesis, but it does make the near-term future a lot more bumpy.

Poor Capital Allocation Has Hurt the Share Price

The railways have incredible moats. However, the market already knows this. Valuations reflect the moat, and the only advantage to holding one is management’s ability to flex that moat into additional profits down the road.

I think CN Rail has done a relatively poor job at this, prioritizing headline grabbers like share buybacks and dividend growth over balance sheet strength.

The company spent more on buybacks and dividends than it was bringing in during the height of the COVID-19 pandemic. Now that valuations are much lower, the company doesn’t have as much capital to buy back shares, and has scaled them back.

This is in stark contrast to a company like CP Rail, which did the complete opposite. During the heightened freight environment and high valuations, the company stopped buybacks completely. It has now resumed them during periods of lower prices.

The improper use of capital is one of the main reasons CP has performed so much better than CN over the last few years, and it now has a lot more capital to buy back shares at lower prices.

Valuation Appears Fair, But I Believe CP is The Better Play

Canadian National Railway’s valuation looks reasonable at current levels. The stock is trading at a slight discount to its historical averages.

Investors seem to be pricing in steady earnings and operational efficiency here, not some big rebound story.

I believe CP Rail is the better capital allocator and better management team. CN Rail’s network scale and cost discipline justify a bit of a premium, but the gap with peers such as CP Rail, especially after the Kansas City Southern acquisition, has closed substantially.

If margin expansion or faster revenue per tonne-mile growth doesn’t show up, I doubt we’ll see multiple expansion anytime soon. For the stock to re-rate higher, CN would probably need clear gains in efficiency or pricing power.

Maybe there’s upside if the operating ratio continues to improve and the freight environment picks back up. But even then, this would be felt by higher quality competitors like CP Rail.

Right now, I’m leaning neutral. I don’t feel this company is a terrible buy by any stretch. I just see CP as the better operator if I had to choose one.