Can Canadian National profit from Freight Gridlock?

International shipping gridlock could benefit one of Bill Gates’ favorite stocks, the Canadian National Railway (NYSE: CNI).

Ships carrying up to half a million containers are waiting off the ports of Los Angeles and Long Beach because of delays, CBS Los Angeles reports. In response, some shippers are seeking other ports, such as Portland, Oregon.

The Canadian National (CNI) could benefit from freight diversions because its rail lines serve alternative ports. For example, the CN runs to Prince Rupert and Vancouver, British Columbia, and to New Orleans, Baton Rouge, and Mobile.

Container ships seeking to avoid the California gridlock could sail to Vancouver or Prince Rupert. Some ships could sail through the Panama Canal and head for New Orleans or Mobile. Strangely, one of the CN’s mainlines runs between Chicago and New Orleans.

Bill Gates and CN

Bill Gates and his ex-wife, Melinda Gates, could profit from this diversion. Gates owned 87.3 million CN shares through his Cascade Investment Trust before his May 2021 divorce, Freight Waves estimates. Additionally, the Bill and Melinda Gates Foundation owned another 13.9 CN shares.

Bill gave Melinda 14.1 million shares in CN stock through their divorce settlement. In March 2021, CN management estimated that Bill and Melinda Gates owned 16% of the railway’s shares. The Financial Post estimates the Gates’ CN stake was worth $1.5 billion in May 2021.

Hence, observers will wonder if the Canadian National (CNI) is a value investment in the age of transportation gridlock. CN operates rail lines to alternative ports.

Is the Canadian National Making Money?

The Canadian National Railway (NYSE: CNI) makes money. The CNI reported a quarterly gross profit of $1.286 billion, and a quarterly operating income of $1.125 billion on 30 June 2021.

The CNI is experiencing revenue growth. Stockrow estimates Canadian National’s revenues grew by 23.86% in the quarter ending on 30 June 2021. The quarterly revenues grew from $2.344 billion on June 30, 2020, to $2.904 billion on 30 June 2021.

The quarterly operating income rose from $566.38 million on 30 June 2020 and the quarterly gross profit grew from $1.094 billion on 30 June 2020. Thus, Canadian National seems to prosper in the pandemic.

How Much Cash is Canadian National Generating?

The Canadian National (NYSE: CNI) is generating cash from its operations. The railway reported a quarterly operating cash flow of $1.191 billion on 30 June 2021.

However, Canadian National is not keeping much of that cash. It reported a quarterly ending cash flow of $63.81 million on 30 June 2021. The quarterly ending cash flow fell from $826.92 million on 31 March 2021.

Similarly, the CNI only had $883.11 million in cash and short-term investments on 30 June 2021. The cash and short-term investments grew from $660.58 million on 30 June 2020.

However, CNI borrowed money in the last quarter. It reported a quarterly financing cash flow of $173.56 million on 30 June 2021. The Total Debt grew from $10.563 billion on 31 March 2021 and $11.38 billion on June 30 2021.

Thus, the CN is making more money from its rail lines. However, the railway has a hard time keeping cash.

Is the Canadian National a Value Investment?

The Canadian National (CNI) has growing value. Its total assets grew from $33.028 billion on 30 June 2020 to $37.339 billion on 30 June 2021.

Mr. Market has noticed that value growth. He paid $104.98 for CN on 21 October 2020 and $130.79 for CNI on 18 October 2021. I think Mr. Market fairly priced CN at $123.53. I think Mr. Market fairly priced CNI at $130.79 on 20 October 2021.

I consider Canadian National an excellent dividend stock because it paid a 48.7¢ quarterly dividend on 29 September 2021. Canadian National has scheduled four 48.7¢ quarterly dividends through 29 September 2022.

However, the dividend fell from 50.9¢ on 30 June 2021. Overall, Canadian National Railway shares offered a $1.95 forward dividend and a 1.59% forward dividend yield on 18 October 2021, estimates.

So yes, Bill Gates is still right about the Canadian National. I think CNI is an excellent value investment that could prosper because of transportation gridlock