Wire · AZ Weekly Post
Key Points CN Rail has rallied strongly in 2026 but looks less frothy after an 8% pullback, and the current valuation assumes a lot goes right in a still-uncertain backdrop (tariffs, potential correction risk). Even with that risk, CN Rail remains a high-quality dividend-growth pick with improving earnings guidance and potential upside from better operating efficiency (including AI and partnerships), which could fuel a longer-term breakout if volumes stay strong.
The Canadian railway stocks have been rolling higher this year. While tariff threats add to the long list of uncertainties and shares look to flirt with a correction (a 10% drop from peak levels), I still think investors might need to brace themselves now that momentum has turned a corner and the new valuation bakes in quite a bit more going right in an environment that’s far from ideal.
Shares of CN Rail (TSX: CNR) have been in the penalty box for quite a while prior to the 2026 run-up. While playing the multi-year breakout in the stock likely led to swift losses for traders who decided to board at the wrong moment, I still think CNR remains one of the better dividend-growth gems on the market for investors looking for a place to park extra uninvested TFSA or RRSP cash.
The stock looks far less frothy after the 8% drawdown, with shares now trading at 21.8 times trailing price-to-earnings (P/E). While this might seem mildly expensive, the company’s earnings are on the right track, and management is now guiding higher. Additionally, the operating ratio (OR) has been steadily improving, offering potential upside.
Even as tariffs introduce more noise, I still expect demand to stay robust for the rest of the year. If freight volumes take a step backward, CN Rail can use AI to improve asset utilization. Partnerships with other railways to improve connectivity further strengthen the outlook.
CN Rail is still hungry to expand its footprint, though regulatory unknowns make it unclear if it will succeed in acquiring Kansas City Southern. Recent agreements, however, are seen as a win-win-win proposition, potentially helping the industry move past a turbulent past couple of years.
For now, CN Rail’s breakout is postponed rather than cancelled. The stock remains a decent pick-up for those who may have missed the initial run-up. The company, valued at $103 billion, has one of the widest economic moats and a dividend-growth profile that appears unmatched.
With volumes marching higher again, the big question is what could happen if volumes stay robust while CN Rail drives its OR higher. In that scenario, the stock could experience a real, sustained breakout, potentially reaching $200 per share. Time will tell if management can execute as new technologies help level up operating efficiencies.
Source: The Motley Fool Canada
