Intrinsic value of Canadian National Railway - CNI

Previous Close

$80.23

  Intrinsic Value

$20.97

stock screener

  Rating & Target

str. sell

-74%

  Value-price divergence*

-70%

Previous close

$80.23

 
Intrinsic value

$20.97

 
Up/down potential

-74%

 
Rating

str. sell

 
Value-price divergence*

-70%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of CNI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 60.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -4.55
  17.10
  15.89
  14.80
  13.82
  12.94
  12.14
  11.43
  10.79
  10.21
  9.69
  9.22
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.63
  6.47
  6.32
  6.19
  6.07
  5.97
  5.87
  5.78
  5.70
  5.63
  5.57
Revenue, $m
  8,909
  10,432
  12,090
  13,880
  15,798
  17,842
  20,009
  22,296
  24,701
  27,223
  29,860
  32,613
  35,482
  38,468
  41,575
  44,805
  48,161
  51,649
  55,274
  59,041
  62,958
  67,032
  71,272
  75,684
  80,280
  85,069
  90,061
  95,269
  100,702
  106,375
  112,300
Variable operating expenses, $m
 
  6,072
  7,036
  8,078
  9,194
  10,384
  11,645
  12,976
  14,376
  15,844
  17,379
  18,981
  20,650
  22,389
  24,197
  26,076
  28,030
  30,060
  32,169
  34,362
  36,642
  39,013
  41,480
  44,048
  46,723
  49,510
  52,416
  55,446
  58,609
  61,910
  65,359
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  4,977
  6,072
  7,036
  8,078
  9,194
  10,384
  11,645
  12,976
  14,376
  15,844
  17,379
  18,981
  20,650
  22,389
  24,197
  26,076
  28,030
  30,060
  32,169
  34,362
  36,642
  39,013
  41,480
  44,048
  46,723
  49,510
  52,416
  55,446
  58,609
  61,910
  65,359
Operating income, $m
  3,932
  4,361
  5,054
  5,802
  6,604
  7,458
  8,364
  9,320
  10,325
  11,379
  12,481
  13,632
  14,831
  16,080
  17,378
  18,728
  20,131
  21,589
  23,104
  24,679
  26,317
  28,020
  29,792
  31,636
  33,557
  35,559
  37,646
  39,822
  42,094
  44,465
  46,942
EBITDA, $m
  4,839
  5,424
  6,286
  7,217
  8,214
  9,277
  10,404
  11,593
  12,843
  14,155
  15,526
  16,957
  18,449
  20,002
  21,617
  23,296
  25,042
  26,855
  28,740
  30,699
  32,736
  34,854
  37,058
  39,353
  41,742
  44,232
  46,828
  49,535
  52,361
  55,310
  58,391
Interest expense (income), $m
  348
  350
  475
  609
  753
  908
  1,073
  1,248
  1,432
  1,626
  1,830
  2,043
  2,265
  2,496
  2,738
  2,988
  3,249
  3,520
  3,801
  4,094
  4,398
  4,714
  5,043
  5,385
  5,741
  6,112
  6,499
  6,902
  7,322
  7,761
  8,218
Earnings before tax, $m
  3,647
  4,010
  4,579
  5,193
  5,851
  6,550
  7,291
  8,072
  8,893
  9,753
  10,652
  11,589
  12,566
  13,583
  14,641
  15,740
  16,882
  18,069
  19,303
  20,585
  21,919
  23,305
  24,749
  26,251
  27,816
  29,447
  31,147
  32,921
  34,772
  36,704
  38,723
Tax expense, $m
  953
  1,083
  1,236
  1,402
  1,580
  1,769
  1,969
  2,179
  2,401
  2,633
  2,876
  3,129
  3,393
  3,668
  3,953
  4,250
  4,558
  4,879
  5,212
  5,558
  5,918
  6,292
  6,682
  7,088
  7,510
  7,951
  8,410
  8,889
  9,388
  9,910
  10,455
Net income, $m
  2,694
  2,928
  3,343
  3,791
  4,271
  4,782
  5,322
  5,893
  6,492
  7,120
  7,776
  8,460
  9,174
  9,916
  10,688
  11,490
  12,324
  13,191
  14,091
  15,027
  16,001
  17,013
  18,066
  19,163
  20,306
  21,496
  22,737
  24,032
  25,383
  26,794
  28,268

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  130
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  27,428
  32,001
  37,086
  42,576
  48,460
  54,730
  61,377
  68,393
  75,770
  83,505
  91,595
  100,039
  108,840
  118,001
  127,531
  137,438
  147,733
  158,433
  169,551
  181,108
  193,124
  205,621
  218,624
  232,161
  246,258
  260,948
  276,262
  292,235
  308,903
  326,304
  344,479
Adjusted assets (=assets-cash), $m
  27,298
  32,001
  37,086
  42,576
  48,460
  54,730
  61,377
  68,393
  75,770
  83,505
  91,595
  100,039
  108,840
  118,001
  127,531
  137,438
  147,733
  158,433
  169,551
  181,108
  193,124
  205,621
  218,624
  232,161
  246,258
  260,948
  276,262
  292,235
  308,903
  326,304
  344,479
Revenue / Adjusted assets
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
Average production assets, $m
  24,617
  28,825
  33,405
  38,349
  43,650
  49,297
  55,284
  61,604
  68,249
  75,216
  82,503
  90,109
  98,036
  106,288
  114,872
  123,795
  133,069
  142,706
  152,721
  163,131
  173,954
  185,211
  196,923
  209,116
  221,814
  235,046
  248,840
  263,227
  278,241
  293,915
  310,286
Working capital, $m
  -667
  355
  411
  472
  537
  607
  680
  758
  840
  926
  1,015
  1,109
  1,206
  1,308
  1,414
  1,523
  1,637
  1,756
  1,879
  2,007
  2,141
  2,279
  2,423
  2,573
  2,730
  2,892
  3,062
  3,239
  3,424
  3,617
  3,818
Total debt, $m
  8,095
  10,789
  13,830
  17,112
  20,631
  24,381
  28,355
  32,551
  36,963
  41,588
  46,426
  51,476
  56,738
  62,217
  67,915
  73,840
  79,997
  86,395
  93,044
  99,955
  107,140
  114,613
  122,389
  130,484
  138,915
  147,699
  156,857
  166,409
  176,376
  186,782
  197,651
Total liabilities, $m
  16,443
  19,137
  22,178
  25,460
  28,979
  32,729
  36,703
  40,899
  45,311
  49,936
  54,774
  59,824
  65,086
  70,565
  76,263
  82,188
  88,345
  94,743
  101,392
  108,303
  115,488
  122,961
  130,737
  138,832
  147,263
  156,047
  165,205
  174,757
  184,724
  195,130
  205,999
Total equity, $m
  10,985
  12,865
  14,909
  17,115
  19,481
  22,001
  24,674
  27,494
  30,460
  33,569
  36,821
  40,216
  43,754
  47,437
  51,267
  55,250
  59,389
  63,690
  68,160
  72,805
  77,636
  82,660
  87,887
  93,329
  98,996
  104,901
  111,057
  117,479
  124,179
  131,174
  138,481
Total liabilities and equity, $m
  27,428
  32,002
  37,087
  42,575
  48,460
  54,730
  61,377
  68,393
  75,771
  83,505
  91,595
  100,040
  108,840
  118,002
  127,530
  137,438
  147,734
  158,433
  169,552
  181,108
  193,124
  205,621
  218,624
  232,161
  246,259
  260,948
  276,262
  292,236
  308,903
  326,304
  344,480
Debt-to-equity ratio
  0.737
  0.840
  0.930
  1.000
  1.060
  1.110
  1.150
  1.180
  1.210
  1.240
  1.260
  1.280
  1.300
  1.310
  1.320
  1.340
  1.350
  1.360
  1.370
  1.370
  1.380
  1.390
  1.390
  1.400
  1.400
  1.410
  1.410
  1.420
  1.420
  1.420
  1.430
Adjusted equity ratio
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402
  0.402

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,694
  2,928
  3,343
  3,791
  4,271
  4,782
  5,322
  5,893
  6,492
  7,120
  7,776
  8,460
  9,174
  9,916
  10,688
  11,490
  12,324
  13,191
  14,091
  15,027
  16,001
  17,013
  18,066
  19,163
  20,306
  21,496
  22,737
  24,032
  25,383
  26,794
  28,268
Depreciation, amort., depletion, $m
  907
  1,064
  1,233
  1,415
  1,611
  1,819
  2,040
  2,273
  2,518
  2,776
  3,044
  3,325
  3,618
  3,922
  4,239
  4,568
  4,910
  5,266
  5,635
  6,020
  6,419
  6,834
  7,267
  7,716
  8,185
  8,673
  9,182
  9,713
  10,267
  10,846
  11,450
Funds from operations, $m
  3,635
  3,991
  4,575
  5,206
  5,882
  6,601
  7,362
  8,166
  9,010
  9,895
  10,820
  11,785
  12,791
  13,838
  14,927
  16,058
  17,234
  18,457
  19,727
  21,047
  22,420
  23,847
  25,333
  26,880
  28,491
  30,169
  31,920
  33,745
  35,650
  37,640
  39,718
Change in working capital, $m
  -215
  52
  56
  61
  65
  69
  74
  78
  82
  86
  90
  94
  98
  102
  106
  110
  114
  119
  123
  128
  133
  139
  144
  150
  156
  163
  170
  177
  185
  193
  201
Cash from operations, $m
  3,850
  3,939
  4,519
  5,145
  5,816
  6,531
  7,289
  8,088
  8,928
  9,809
  10,730
  11,692
  12,694
  13,736
  14,821
  15,949
  17,120
  18,338
  19,603
  20,919
  22,286
  23,709
  25,189
  26,730
  28,334
  30,007
  31,750
  33,568
  35,466
  37,447
  39,516
Maintenance CAPEX, $m
  0
  -908
  -1,064
  -1,233
  -1,415
  -1,611
  -1,819
  -2,040
  -2,273
  -2,518
  -2,776
  -3,044
  -3,325
  -3,618
  -3,922
  -4,239
  -4,568
  -4,910
  -5,266
  -5,635
  -6,020
  -6,419
  -6,834
  -7,267
  -7,716
  -8,185
  -8,673
  -9,182
  -9,713
  -10,267
  -10,846
New CAPEX, $m
  -1,995
  -4,208
  -4,580
  -4,944
  -5,300
  -5,648
  -5,987
  -6,319
  -6,645
  -6,967
  -7,287
  -7,606
  -7,927
  -8,252
  -8,583
  -8,923
  -9,274
  -9,637
  -10,015
  -10,410
  -10,823
  -11,257
  -11,713
  -12,193
  -12,698
  -13,232
  -13,794
  -14,387
  -15,013
  -15,674
  -16,371
Cash from investing activities, $m
  -1,965
  -5,116
  -5,644
  -6,177
  -6,715
  -7,259
  -7,806
  -8,359
  -8,918
  -9,485
  -10,063
  -10,650
  -11,252
  -11,870
  -12,505
  -13,162
  -13,842
  -14,547
  -15,281
  -16,045
  -16,843
  -17,676
  -18,547
  -19,460
  -20,414
  -21,417
  -22,467
  -23,569
  -24,726
  -25,941
  -27,217
Free cash flow, $m
  1,885
  -1,177
  -1,125
  -1,032
  -899
  -727
  -517
  -271
  10
  324
  668
  1,041
  1,441
  1,867
  2,315
  2,786
  3,278
  3,791
  4,323
  4,874
  5,444
  6,033
  6,642
  7,270
  7,919
  8,590
  9,283
  9,998
  10,739
  11,506
  12,300
Issuance/(repayment) of debt, $m
  511
  2,824
  3,041
  3,283
  3,519
  3,750
  3,975
  4,195
  4,412
  4,626
  4,838
  5,050
  5,263
  5,479
  5,699
  5,924
  6,157
  6,398
  6,649
  6,911
  7,185
  7,473
  7,776
  8,095
  8,430
  8,784
  9,158
  9,552
  9,967
  10,406
  10,869
Issuance/(repurchase) of shares, $m
  -1,485
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,021
  2,824
  3,041
  3,283
  3,519
  3,750
  3,975
  4,195
  4,412
  4,626
  4,838
  5,050
  5,263
  5,479
  5,699
  5,924
  6,157
  6,398
  6,649
  6,911
  7,185
  7,473
  7,776
  8,095
  8,430
  8,784
  9,158
  9,552
  9,967
  10,406
  10,869
Total cash flow (excl. dividends), $m
  875
  1,646
  1,916
  2,251
  2,620
  3,022
  3,457
  3,924
  4,422
  4,949
  5,506
  6,091
  6,704
  7,345
  8,014
  8,711
  9,435
  10,189
  10,971
  11,785
  12,629
  13,506
  14,418
  15,365
  16,350
  17,374
  18,440
  19,550
  20,707
  21,912
  23,168
Retained Cash Flow (-), $m
  80
  -1,880
  -2,044
  -2,207
  -2,365
  -2,521
  -2,672
  -2,820
  -2,966
  -3,110
  -3,252
  -3,395
  -3,538
  -3,683
  -3,831
  -3,982
  -4,139
  -4,301
  -4,470
  -4,646
  -4,830
  -5,024
  -5,227
  -5,442
  -5,667
  -5,905
  -6,156
  -6,421
  -6,701
  -6,995
  -7,306
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -233
  -128
  44
  254
  502
  785
  1,104
  1,456
  1,840
  2,254
  2,696
  3,166
  3,662
  4,183
  4,728
  5,296
  5,888
  6,502
  7,139
  7,799
  8,483
  9,190
  9,924
  10,683
  11,469
  12,284
  13,129
  14,006
  14,916
  15,862
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  -221
  -115
  37
  200
  365
  526
  677
  810
  922
  1,008
  1,067
  1,097
  1,100
  1,076
  1,030
  965
  886
  796
  701
  604
  510
  421
  340
  269
  207
  156
  114
  82
  57
  38
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Canadian National Railway Company is engaged in the rail and related transportation business. The Company's network of approximately 20,000 route miles of track spans Canada and mid-America, connecting approximately three coasts, including the Atlantic, the Pacific and the Gulf of Mexico and serving the cities and ports of Vancouver, Prince Rupert (British Columbia), Montreal, Halifax, New Orleans, and Mobile (Alabama), and the metropolitan areas of Toronto, Edmonton, Winnipeg, Calgary, Chicago, Memphis, Detroit, Duluth (Minnesota)/Superior (Wisconsin), and Jackson (Mississippi), with connections to all points in North America. Its network and connections to all Class I railroads provide its customers access to the three North American Free Trade Agreement nations. It carries over 300 million tons of cargo, serving exporters, importers, retailers, farmers and manufacturers. Its freight includes seven commodity representing a portfolio of goods.

FINANCIAL RATIOS  of  Canadian National Railway (CNI)

Valuation Ratios
P/E Ratio 22.7
Price to Sales 6.9
Price to Book 5.6
Price to Tangible Book
Price to Cash Flow 15.9
Price to Free Cash Flow 33
Growth Rates
Sales Growth Rate -4.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -0.4%
Cap. Spend. - 3 Yr. Gr. Rate 6.4%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 63.7%
Total Debt to Equity 73.7%
Interest Coverage 11
Management Effectiveness
Return On Assets 10.9%
Ret/ On Assets - 3 Yr. Avg. 11.1%
Return On Total Capital 14.2%
Ret/ On T. Cap. - 3 Yr. Avg. 14.7%
Return On Equity 24.4%
Return On Equity - 3 Yr. Avg. 24.4%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 78%
Gross Margin - 3 Yr. Avg. 75.3%
EBITDA Margin 55%
EBITDA Margin - 3 Yr. Avg. 51.4%
Operating Margin 44.1%
Oper. Margin - 3 Yr. Avg. 41.3%
Pre-Tax Margin 40.9%
Pre-Tax Margin - 3 Yr. Avg. 38.5%
Net Profit Margin 30.2%
Net Profit Margin - 3 Yr. Avg. 28.1%
Effective Tax Rate 26.1%
Eff/ Tax Rate - 3 Yr. Avg. 27%
Payout Ratio 31.8%

CNI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CNI stock intrinsic value calculation we used $8909 million for the last fiscal year's total revenue generated by Canadian National Railway. The default revenue input number comes from 2016 income statement of Canadian National Railway. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CNI stock valuation model: a) initial revenue growth rate of 17.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.4%, whose default value for CNI is calculated based on our internal credit rating of Canadian National Railway, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Canadian National Railway.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CNI stock the variable cost ratio is equal to 58.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CNI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.4% for Canadian National Railway.

Corporate tax rate of 27% is the nominal tax rate for Canadian National Railway. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CNI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CNI are equal to 276.3%.

Life of production assets of 27.1 years is the average useful life of capital assets used in Canadian National Railway operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CNI is equal to 3.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $10985 million for Canadian National Railway - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 752.891 million for Canadian National Railway is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Canadian National Railway at the current share price and the inputted number of shares is $60.4 billion.

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COMPANY NEWS

▶ US Rail Freight Traffic on the Elevated Track in Week 40   [Oct-13-17 01:43PM  Market Realist]
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▶ Yahoo Finance Live: Midday Movers - Oct 4th, 2017   [09:40AM  Yahoo Finance Video]
▶ Canadian National Railway: Intermodal Growth Pushed Volumes   [Sep-27-17 09:11AM  Market Realist]
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▶ What Analysts Recommend for US Railroads   [10:37AM  Market Realist]
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▶ Canadian National Railway Retains Lead in Week 32   [Aug-22-17 04:06PM  Market Realist]
▶ Growth for Burlington Northern Santa Fes Consumer Products   [Aug-11-17 12:35PM  Market Realist]
▶ US Freight Rail Traffic Was a Mixed Bag in Week 30   [Aug-07-17 04:38PM  Market Realist]
▶ CN announces C$500-million debt offering   [Jul-27-17 06:00PM  PR Newswire]
Financial statements of CNI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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