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Canadian National Railway (TSX:CNR) and Canadian Pacific Kansas City (TSX:CP) are two of the largest railway companies in North America, both listed on the TSX. Investors looking for a solid long-term stock have often debated which of these two giants is the better buy. While both are essential to Canada’s transportation network, the railway stocks have key differences in market positioning, financial performance, and growth potential. Let’s dig into their latest earnings, past performance, and future outlook to determine which one might be the best buy right now.
Into earnings
Starting with CN Rail, the railway stock reported revenue of $17.1 billion for 2024, a slight decline of 2.5% year over year. This dip was largely due to economic slowdowns, disruptions from wildfires in Alberta, and temporary work stoppages that impacted operations. Despite this, CN remains highly profitable, with a profit margin of 26.1% and an operating margin of 40%. Management has maintained an optimistic outlook for 2025, targeting earnings per share (EPS) growth of 10%–15% as it works to optimize its network and invest in infrastructure. The railway stock is also known for its steady dividend growth, with a forward yield of 2.5% and a payout ratio of 48.2%.
CPKC, on the other hand, has been riding a wave of expansion following its 2023 merger with Kansas City Southern. This created the first single-line railway connecting Canada, the U.S., and Mexico. This expanded network contributed to strong revenue growth, with the company posting a 3% increase in revenue in its latest quarter, reaching $3.9 billion. CPKC’s diluted EPS climbed 16% to $1.28, driven by efficiency improvements and cost reductions. For the full year 2024, revenue surged 15.9% to $14.6 billion, outpacing CN Rail’s performance. The company’s operating ratio, a key efficiency measure, also improved to 59.7%, thus highlighting its ability to generate higher profitability from its operations.
Value and income
Stock performance has been mixed between the two railway giants. CPKC shares have returned 13.7% over the past year, slightly above the broader transportation sector’s 13.1% return. The railway stock currently trades at around $108.79, down from its 52-week high of $123.37. Meanwhile, CN Rail’s stock has seen a bit more volatility, trading between $139.40 and $181.34 over the past year, and currently sitting at $142.37. CN Rail has a lower beta of 0.64 compared to CPKC’s 0.77, meaning it has historically been less volatile. For investors looking for more stability, CN Rail might be the safer choice.
When it comes to valuation, CN Rail trades at a trailing price-to-earnings (P/E) ratio of 20.1, compared to CPKC’s higher P/E ratio of 27. A lower P/E suggests CN Rail may be a better value investment, as investors are paying less for each dollar of earnings. Plus, CN Rail’s price-to-book (P/B) ratio stands at 4.2, while CPKC’s is significantly lower at 2.10, thus indicating that CPKC may offer better value based on its asset base. However, CN Rail’s lower valuation metrics could reflect investor concerns over slowing revenue growth.
Future outlook
Looking ahead, CN Rail is focusing on efficiency improvements and network optimization to drive profitability. The railway stock is also investing heavily in technology, including automation and artificial intelligence, to enhance operational reliability. CPKC, on the other hand, is banking on its expanded network to capture more market share in North America. The merger with Kansas City Southern provides direct access to Mexico. Plus, CPKC expects mid-single-digit volume growth in 2025, supported by strong demand in grain and intermodal transport.
So, which railway stock is the better buy right now? If you’re looking for stability, strong dividends, and a lower valuation, CN Rail is a solid choice. It provides a reliable income stream and has a well-established network that remains essential to the Canadian economy. However, if you’re willing to bet on growth and the long-term potential of a transcontinental railway network, CPKC could be the better pick. Its recent merger opens up new trade opportunities and positions it as a unique player in North America’s transportation sector. Ultimately, both railway stocks have their merits. It just depends on whether you’re looking for steady income or aggressive expansion.