BofA Securities analyst Ken Hoexter downgraded Canadian National Railway Company (NYSE:CNI) to Neutral from Buy, lowering the price forecast from $129 to $122 amid "rising earnings pressure."

According to the analyst, the company's third-quarter volumes have been affected by ongoing network performance challenges following the labor lockout of Conductor/Engineer staff in August.

The analyst estimates 2024 EPS growth of -0.3%, down from a previous forecast of +2.0%, which is below Canadian National's revised low single-digit guidance, reduced from mid-single digits last month.

Hoexter highlights that Canadian National has been grappling with months of labor uncertainty, a four-day shutdown of its Canadian network, and wildfires in Alberta.

The company's September volumes were below expectations, showing only a slight year-over-year increase. This was influenced by labor uncertainty, a slower-than-anticipated ramp in Canadian grain, and various service challenges.

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Additionally, Metals & Minerals volumes declined by 9% year-over-year, falling short of the analyst's previous estimate of -5.5% (now revised to -9%), primarily due to reduced steel demand from sluggish construction activity.

The analyst has revised the third quarter 2024 operating ratio estimate to 63.1%, up from 61.4%, reflecting a 90 basis points deterioration from the second to the third quarter, which is worse than the 80 basis points average improvement seen over the past five years during the same period.

Following a rise in labor costs and congestion in the second quarter, the company has furloughed employees and halted hiring in certain regions as it seeks to address cost issues in the Vancouver corridor, according to the analyst.

Price Action: CNI shares are trading lower by 0.49% to $113.68 at last check Friday.

Image via Canadian National Railway Company

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