CNI: Bullish Article Contrasts with DeepValue's Cautious Stance on Regulatory Risks

What happened

A Seeking Alpha article from February 2026 positions Canadian National Railway as a defensive buy for volatile markets, highlighting flat 2026 volume guidance but expected EPS and FCF growth through pricing, productivity, and a C$500 million capex reduction. However, the latest DeepValue master report maintains a 'WAIT' rating, arguing that at ~$99, the stock already prices in mid-single-digit EPS growth driven by cost cuts and normalized capex, with limited upside. The report notes that CNI improved its operating ratio to 61.4% in Q3 2025 via labor reductions, yet historical capex needs and potential safety mandates could force spending back above C$3.4 billion, undermining free cash flow. Critical risks include tariff escalations, regulatory responses to the Montreal collision report, and the sustainability of cost savings amid layoffs and weak industrial demand. Thus, while the article paints an optimistic picture of near-term efficiency, the report emphasizes that current valuation lacks a margin of safety without clearer evidence on capex containment and regulatory outcomes.

Implication

The alignment between the article and DeepValue report on capex normalization and cost control confirms CNI's near-term earnings algorithm is operational, but this is fully reflected in the current ~19x P/E multiple. However, unaddressed regulatory overhangs, such as potential fail-safe train control mandates, could reverse capex savings and compress free cash flow, a risk underplayed in the optimistic narrative. Investors must closely monitor Q4 2025 results and initial 2026 guidance for any upward revisions to capex above C$3.4 billion or deterioration in operating metrics post-layoffs. A pullback below $90, as per the report's attractive entry, would offer a better risk-reward opportunity given the narrow valuation range between base ($105) and bear ($85) scenarios. Therefore, maintaining a watchlist stance or trimming positions above $112 is prudent until regulatory clarity and sustained cost efficiencies are demonstrably achieved.

Thesis delta

The new article reinforces the market's positive view on CNI's cost discipline and capex reduction, but it does not introduce material information that alters the DeepValue thesis. The report's cautious stance remains valid due to persistent regulatory risks and the stock's full valuation, with no shift in the 'WAIT' rating warranted. Investors should still await a price drop below $90 or clearer evidence that capex and safety mandates will not undermine free cash flow.