Valued at a market cap of $100 billion, Canadian National Railway (TSX:CNR) is among the largest transportation companies globally. In the last 20 years, CNR stock has returned significant wealth to shareholders, rising over 1,200% after accounting for dividend reinvestments.

Alternatively, the blue-chip TSX stock currently trades 12.5% below all-time highs. Let's see if the ongoing pullback provides investors an opportunity to buy the dip and gain exposure to a quality railroad giant at the current multiple.

Why is CNR stock falling?

Canadian National Railway is engaged in the rail transportation business, moving goods such as petroleum, chemicals, grain, fertilizers, metals, minerals, forest products, automotive products, and more. It provides services to exporters, farmers, manufacturers, importers, and retailers. Additionally, it offers services such as logistics, freight forwarding, and transportation management. While the Canadian National Railway is well-diversified, its performance depends on several macroeconomic factors.

In the third quarter (Q3) of 2024, it grew sales by 3% year over year, while RTM (revenue ton-miles) was up 2% year over year. RTM is calculated by multiplying the weight of the goods shipped (in tons) by the distance travelled (in miles).

The metric evaluates the company's workload and is an indicator of operational efficiency and capacity utilization. CNR expects RTM growth in 2024 to range between 3% and 5% as it looks to recover from labour uncertainties and network shutdowns in the first half of the year.

Long-haul international intermodal and refined petroleum products drove the company's top line in Q3. According to Canadian National Railway, business has been challenging in the last year due to lower-than-expected industrial production, sluggish demand, and slower consumer spending.

Despite this macro backdrop, Canadian National Railway grew adjusted earnings by 2% year over year in Q3, while the operating ratio rose by 110 basis points to 63.1%.

What next for CNR stock?

In the first nine months of 2024, CNR generated a free cash flow of $2.1 billion, compared to $2.3 billion in the year-ago period, due to higher capital expenditures, which offset its strong operating cash flow numbers.

Canadian National Railway emphasized that while it has spent $2.1 billion on share buybacks since February, the company will pause the program to utilize excess cash flow to lower balance sheet debt.

Analysts expect adjusted earnings per share to rise to $8.96 per share in 2025, up from $7.28 per share in 2023. So, priced at 17.6 times forward earnings, CNR stock is not too expensive, given it also pays shareholders an annual dividend of $3.38 per share, which translates to a yield of 2.2%. Additionally, these payouts rose from just $0.08 per share in November 1997.

Canadian National Railway remains a top investment choice for long-term shareholders. Its vast transportation network provides it with a competitive moat, resulting in inflation-beating returns for shareholders.

Once the macroeconomic situation improves, Canadian National Railway should further leverage its vertical supply chain and improve profitability. Moreover, with $3.5 billion allocated towards capital expenditures in 2024, CNR continues to invest in growth, which should drive future cash flow, earnings, and dividends higher.