Zacks Warns on CNI as DeepValue Maintains Wait Stance Amid Cost and Regulatory Risks

What happened

Zacks Investment Research published a bearish article highlighting Canadian National Railway's rising costs, weak liquidity, and earnings cuts, with estimates trimmed and an industry rank in the bottom 20%. This aligns with DeepValue's master report, which notes CNI's pivot to aggressive cost reductions, including layoffs of 400 managers, to sustain mid-single-digit EPS growth despite tariff-driven volume headwinds and only 1% revenue ton-mile growth in Q3 2025. The company faces persistent challenges from escalating U.S. tariffs, potential safety regulations that could increase capital expenditure above the guided C$2.8 billion for 2026, and a deteriorating operating ratio that improved to 61.4% in Q3 but remains under pressure. DeepValue's analysis assigns a 'WAIT' rating with a base case implied value of $105, but downside to $85 if capex rises or tariffs worsen, reflecting a narrow risk-reward at the current price near $99. Investors are advised to avoid the stock until a pullback below $90 or clearer evidence emerges on capex normalization and regulatory outcomes.

Implication

The Zacks article reinforces DeepValue's cautious view by pointing to CNI's fundamental weaknesses, such as earnings cuts and poor industry ranking, which undermine the stock's premium valuation at 19x P/E. DeepValue's report emphasizes that CNI's recent EPS growth relies heavily on cost cuts and buybacks, with volumes stagnant and regulatory overhangs threatening to reverse gains if capex exceeds C$2.8 billion or tariffs escalate. With a balanced probability scenario showing limited upside to $105 and significant downside to $85, the risk-reward skew is unfavorable for new investments. Key near-term catalysts include Q4 2025 results and 2026 guidance, which will test the durability of the cost-out algorithm and capex plans. Therefore, investors should maintain a watchlist stance, consider trimming if holdings exist, and only enter if the stock falls below $90 while operational metrics remain stable.

Thesis delta

The Zacks article does not shift DeepValue's core thesis but amplifies existing concerns about cost pressures and earnings sustainability, underscoring the fragility of CNI's margin defense in a weak volume environment. It highlights liquidity issues and estimate revisions that were already factored into the risk assessment, reinforcing the need for patience. Thus, the recommendation to wait for a better entry point or clearer regulatory clarity remains unchanged.