CN RAIL UPGRADED; ROOM FOR HIKE SEEN

Investors have been largely focused on the progress at Canadian Pacific Railway Ltd. over the past year, but it may be time to shift their attention away to its larger rival, Canadian National Railway Co.

A pipeline of growth opportunities and recent market share gains led Walter Spracklin, rbc capital Markets analyst, to upgrade cN’s shares to an outperform rating.

“The end-to-end supply chain approach has enhanced cNr’s relationship with key stakeholders and improved network fluidity, helping shippers compete in their own markets and supporting organic growth across cNr’s franchise,” he said. “reliable service has also attracted new customers.”

He noted cN has won four new customers away from its chief rival in recent months, including APL and MOL this year and chrysler and OOcL in 2014.

He said chrysler and OOcL alone would likely be worth about $140-million in annual revenue starting next year.

“Importantly, management emphasized that cNr was not awarded these intermodal contracts based on price — service and geographic reach were the primary factors in each carrier’s decision to switch rail providers,” Mr. Spracklin said. “Specifically, the intermodal customers valued the speed and efficiency of cNr’s service offering, and its strong network access into the u.S. was a secondary motivation to sign with cNr.”

Mr. Spracklin raised his price target on cN to $120 a share, from $99 previously.

Jacob bout, cIbc World Markets analyst, said he believed there was also room for cN to hike its dividend in January. The railway typically targets a payout ratio of about 30%, which would infer, based on his current estimates, that a 25% hike to its annual dividend was possible to about $2.15 a share, from $1.72 currently.

Mr. bout has a sector performer rating on cN and a $110 price target on its shares.