We came across a bullish thesis on Canadian National Railway Company (CNI) on Substack by Kay Kay. In this article, we will summarize the bulls’ thesis on CNI. Canadian National Railway Company (CNI)’s share was trading at $99.76 as of Feb 27th. CNI’s trailing and forward P/E were 20.35 and 18.05 respectively according to Yahoo Finance.
A slow moving freight train, revealing the importance of railway equipment.
Canadian National Railway (CNI) is North America’s premier railroad operator, with a vast network spanning approximately 20,000 miles across Canada and the United States. It serves as a critical transportation backbone, moving over $250 billion worth of goods annually across key industries such as petroleum, chemicals, agriculture, coal, metals, forest products, automotive, and consumer goods. CNI’s dominance stems from its geographic monopoly, extensive intermodal capabilities, and an irreplaceable rail network that offers unparalleled efficiency and cost-effectiveness compared to alternative transportation modes like trucking.
CNI benefits from a unique set of economic characteristics that reinforce its competitive moat. Many shippers, particularly in bulk commodities, have no viable alternatives to rail due to the high cost and inefficiencies of trucking over long distances. The company’s infrastructure includes exclusive rights to rail corridors in remote regions, effectively making it the sole transportation provider for many industries. Even when alternatives exist, rail remains the preferred choice due to its cost efficiency—being three to four times more fuel-efficient than trucking—its lower emissions per ton-mile, and its ability to scale for large shipments. CNI’s intermodal services further strengthen its positioning, seamlessly integrating with trucking and shipping networks to create the most efficient long-haul logistics solution. The company also controls key border crossings between the U.S. and Canada and has access to major ports like Vancouver, Prince Rupert, Montreal, and Halifax, ensuring a strategic advantage in global trade.
CNI’s business model is highly resilient due to the nature of its infrastructure, which requires significant capital expenditures for maintenance but remains predictable over the long term. Unlike other industries with rapid technological obsolescence, rail networks have an extremely long lifespan—some sections of track have been in operation for over a century. Maintenance costs are modest relative to the replacement cost of an entire rail network, and ongoing technological advancements continue to improve efficiency, further extending asset longevity. Revenue generation is straightforward: shippers pay “tolls” each time they transport goods, and while regulatory oversight exists, CNI maintains strong pricing power due to the essential nature of its services.
The sustainability of CNI’s competitive advantages is exceptionally high. Its rail network is an irreplaceable asset, secured under historical conditions that cannot be replicated today. Land scarcity, environmental restrictions, and the enormous capital requirements of building a new railroad network—estimated at over $10 million per mile—ensure that no meaningful competitor will emerge. Additionally, CNI’s exclusive control of key routes through mountain passes, urban centers, and border crossings creates permanent geographical barriers to entry. The regulatory environment serves as both a constraint and a shield, as railroads are recognized as essential infrastructure with protected pricing power. While regulatory risks exist, the North American rail industry has historically maintained a balance between oversight and financial viability.
Economies of scale further reinforce CNI’s dominance. Its vast network allows it to spread fixed costs across more revenue units, leading to lower per-unit transportation costs than smaller competitors. This scale advantage extends to equipment utilization, scheduling efficiency, and technological investments in automation, fuel efficiency, and safety, all of which contribute to higher margins and profitability. The company’s three-coast access—unmatched in North America—grants it unique routing options, while its deep integration into cross-border supply chains enhances its value proposition.
Potential threats to CNI’s dominance remain highly theoretical. For a viable alternative to emerge, a transportation breakthrough would need to match or exceed rail’s cost efficiency, which is unlikely given current technological and economic constraints. Hyperloop, autonomous trucking, large-scale drone cargo transport, or underground freight networks would require monumental advancements in cost, regulatory approvals, and infrastructure investments, none of which are on the horizon. Government intervention to create a competing transportation corridor would necessitate over $500 billion in public funding, while land acquisition and environmental approvals present near-insurmountable barriers.
Regulatory risks, while always a factor, would require a radical shift in policy to erode CNI’s pricing power meaningfully. For instance, reverting to pre-1980 rate regulations, mandating open access to competitors, or implementing severe price controls could impact profitability, but such changes would likely face pushback given rail’s essential role in supply chains. Even a collapse in rail demand would require a dramatic restructuring of the global economy, such as the obsolescence of core commodities like agriculture, fossil fuels, and metals—scenarios that are unlikely to materialize in the foreseeable future.
Physical network degradation due to climate change is another long-term risk, but mitigation efforts and infrastructure investments have historically kept rail networks operational despite extreme weather events. While challenges like permafrost degradation, rising sea levels, and increased storm frequency could raise maintenance costs, CNI’s ability to pass costs through pricing mechanisms ensures financial sustainability.
Ultimately, Canadian National Railway’s core strengths—its irreplaceable network, pricing power, scale efficiencies, and regulatory protection—position it as one of the most durable businesses in North America. With limited viable alternatives and high barriers to competition, its competitive advantages are set to endure for decades, making it a compelling long-term investment opportunity.
Canadian National Railway Company (CNI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 56 hedge fund portfolios held CNI at the end of the third quarter which was 44 in the previous quarter. While we acknowledge the risk and potential of CNI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CNI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.