Canadian National Railway (CNI): Stock to Top Q1 Earnings?

Canadian National Railway Company CNI the rail and rail-related transportation business operator,is scheduled to report first-quarter 2016 financial numbers on Apr 25, after the market closes.

Last quarter, the company delivered an 8.64% positive earnings surprise. Moreover, the company’s bottom line has surpassed the Zacks Consensus Estimate in all of the past four quarters, with an average beat of 7.56%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that the company is likely to beat the Zacks Consensus Estimate because it has the right combination of two key ingredients.

Zacks ESP: Canadian National Railway has an Earnings ESP of +1.47.This is because the Most Accurate estimate stands at 69 cents, while the Zacks Consensus Estimate is pegged lower at 68 cents. This is meaningful and a leading indicator of a likely positive earnings surprise.

Zacks Rank: Canadian National Railway has a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank #1, 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Canadian National Railway’s Zacks Rank #1 and +1.47% ESP makes us reasonably confident of an earnings beat on Apr 21.

What's Driving the Better-than-Expected Earnings?

CNI is better positioned to avert coal headwinds than its rival Canadian Pacific CP, and U.S. peers such as Norfolk Southern Corp. NSC and CSX Corp. Although uncertainties regarding the coal market have been a major headwind for railway transportation companies due to lower export of pet coke, coal is not a major contributor of revenues at Canadian National Railway.

Also, due to lower employee and interest costs, CNI expects a reduction in pension expenses in 2016 compared to 2015. This will further boost the company’s bottom line, going forward.

Another Stock to Consider

Here is another company to consider as our model shows it too has the right combination of elements to post an earnings beat this quarter.

SkyWest Inc. SKYW, with an Earnings ESP of +16.00% and a Zacks Rank #2.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>