Episode Details

Canadian National Railway (CNI) Q2 2026 — Canadian National Railway (CNI on the NYSE, CNR on the TSX) — the only railroad whose network reaches three coasts and one of North America's premier franchises — reported a Q2 2026 beat-and-raise (all figures in Canadian dollars, US GAAP): adjusted diluted EPS of C$2.08 beat the ~C$1.93 estimate (+11% YoY; reported EPS C$2.06, +10%) on revenue of C$4.75B (+11%), operating income of C$1.78B (+9%) and net income of C$1.25B. But the marquee operating ratio ROSE 80 bps to 62.5% (adjusted 62.2%) — the beat came from volume (RTMs +5%) and pricing (freight revenue/RTM +6%, revenue/carload +12% to C$3,236), not efficiency, as diesel prices jumped ~60% (C$5.67 vs C$3.55/gal) and swamped a fuel-efficiency record. Carloads were flat (1.41M). Grain & fertilizers (+18%), petroleum & chemicals (+16%) and automotive (+18%) led; coal was flat. CN RAISED full-year guidance (RTM growth flat to low-single-digit; adjusted EPS growth to mid-to-high single digit), kept ~C$2.8B capex, grew first-half free cash flow 19% to C$1.84B, tripled first-half buybacks to C$1.32B, and raised the dividend to C$0.9150/quarter. Yet on the NYSE line the stock (~US$129, near its US$131.51 52-week high, ~23x forward earnings) sits above our owner-earnings DCF fair value of ~US$118 (C$ cash flows converted at US$0.71/C$) — and above even Wall Street's ~US$119 average target. Our call: HOLD, 3/5. Not financial advice. Canadian National Railway is one of the widest-moat businesses in North America — a transcontinental railroad whose nearly 19,000-mile network is the only one reaching three coasts (Canada's Atlantic and Pacific, and the U.S. Gulf), moving over 300 million tons a year. A key note up front: CN reports in Canadian dollars, while its NYSE line (CNI) trades in U.S. dollars at ~71 US cents per C$1. Q2 2026 was a genuinely good quarter: adjusted diluted EPS of C$2.08 beat the ~C$1.93 estimate (+11% YoY), revenue rose 11% to C$4.75B, and management RAISED full-year guidance (volume growth flat to low-single-digit; adjusted EPS growth to mid-to-high single digit). But here's the nuance the headlines miss: the marquee operating ratio actually ROSE 80 bps to 62.5% (higher is worse). The beat came from volume (revenue ton-miles +5% on a strong grain crop and booming energy) and pricing (freight revenue/RTM +6%, revenue/carload +12%), NOT efficiency — a ~60% jump in diesel prices swamped a genuine fuel-efficiency record, and carloads were actually flat, so the growth was mix, not more shipments. CN's cash machine impressed: first-half free cash flow +19% to C$1.84B, buybacks tripled to C$1.32B, dividend raised to C$0.9150/quarter. So the debate isn't quality — it's price. The NYSE line has recovered ~43% off its US$90.74 low to ~US$129, near its US$131.51 record, at ~23x forward earnings. Converting CN's C$ owner earnings (a ~C$4.0B normalized base) at US$0.71, our owner-earnings DCF lands fair value near US$118 — below the price, even on the optimistic pricing-and-productivity path. Strikingly, even Wall Street's average target (~US$119) now sits below the stock. Our call: HOLD, 3/5 — a premier franchise with no margin of safety, and hard grain comps looming in Q4. Own it for the quality; add on real weakness toward the US$110s (C$150s). Not financial advice. THE CALL: HOLD (3/5, A PREMIER FRANCHISE AT A FULL PRICE — A BEAT-AND-RAISE WITH NO MARGIN OF SAFETY) — base-case value ~$118 vs ~$129 today. What to watch: evidence the growth is broadening beyond grain and energy — sustained, well-served volume gains that aren't just a strong crop — together with the operating ratio grinding back toward the low 60s as diesel prices normalize, which would justify the premium multiple and prompt an upgrade; the risks to respect are the grain tailwind fading into hard fourth-quarter comps (CN laps a record crop and only assumes an average one next season), cross-border tariffs and trade tensions biting freight volumes, and a weak Canad