CNI's Record Grain Haul Reinforces Cost-Cut Strategy Amid Unresolved Tariff and Regulatory Risks

What happened

Canadian National Railway posted a record 2.82 million tonnes of grain moved in December, marking its fourth consecutive monthly high and highlighting operational execution in its key agricultural segment. This performance aligns with CNI's 2025-26 Grain Plan, which targets 27–29.5 million metric tonnes to offset weakness in tariff-sensitive segments like intermodal and automotive. However, the company continues to grapple with escalating U.S. tariffs and potential safety regulations that could force capital expenditures back above the guided C$2.8 billion for 2026, undermining its free cash flow thesis. CNI has aggressively cut costs through layoffs and capex reductions to defend earnings in a low-growth environment, as seen in recent quarterly improvements in operating ratio despite flat revenue ton-mile growth. While the grain record supports near-term profitability, it does not mitigate the structural headwinds that keep the investment case in a holding pattern.

Implication

The December grain performance will provide a modest boost to Q4 2025 results, reinforcing CNI's ability to monetize agricultural volumes under its strategic plan. This strengthens the base case scenario where disciplined cost control and grain strength offset tariff-impacted segments, supporting mid-single-digit EPS growth. However, investors must remain critical of persistent risks, as potential safety mandates from regulatory bodies could force 2026 capex above C$2.8 billion, eroding the free cash flow uplift priced into the stock. Market sentiment may overemphasize this positive data point, but at ~19x P/E, CNI's valuation already reflects much of the efficiency narrative without a margin of safety for downside scenarios. Thus, the 'WAIT' rating remains appropriate, with investors advised to seek clearer evidence on capex normalization and regulatory outcomes before committing capital.

Thesis delta

The record grain movement confirms the agricultural tailwind embedded in CNI's base case, enhancing near-term confidence in earnings resilience through cost control. However, it does not shift the core investment thesis, as key risks from tariffs and potential regulatory-driven capex increases remain unaddressed, keeping the overall risk-reward skewed and the 'WAIT' stance intact. Investors should view this as a reinforcement of existing trends rather than a catalyst for re-rating, prioritizing monitoring of 2026 guidance and safety regulation developments.