-- RBC Capital Markets raised its price target on Canadian National Railway Co. (CNR.TO, CNI) to $178 from $160, and lowered its target on Canadian Pacific Kansas City Ltd. (CP.TO, CP) to $127 from $128.
Analyst Walter Spracklin maintained an Outperform rating on both Canadian-based railways following their quarterly results.
"While CN delivered an inline result vs consensus (note that estimates moved higher into the quarter report), expectations for higher operating leverage following the strong performance across US peers did not materialize in Q1, leading to an early sell-off in the shares," Spracklin said in a note to clients.
"Key is that we believe this to be a knee-jerk reaction to the headline result, as management did a good job on the call to flag what we characterize as discreet Q1 costs," the analyst said.
"We expect operating leverage to pick up through the course of the year and see upside to guidance and consensus numbers."
"We expect CP shares to come under some pressure on the back of Q1 results that were below expectations and trends that put full year guidance at risk," Spracklin said.
"Notable was a coal production issue at a major customer, which was called out as a 100bp headwind to volumes," the analyst said.
"While management guided to a strong sequential improvement in Q2, we are taking our numbers down to the very low end of management guidance for MSD volume and LDD EPS, with risk to the downside."