Raymond James says CN, CPKC stock traffic beats 3Q estimates

Canadian rail traffic turned positive last week, with CN traffic up 0.7% year over year and CPKC up 7.6%. Quarter-to-date traffic growth stands at 4.6% for CN and 6.4% for CPKC, supported by grain, metals, minerals, auto and intermodal volumes, although coal and certain other categories remain weak. Both railways are tracking ahead of Raymond James's Q3 2026 traffic-growth estimates of 3.1% for CN and 4.1% for CPKC, though the firm expects tougher year-over-year comparisons in Q4.

Analysis

The setup favors CPKC over CN on operating leverage: its stronger mix in grain, energy-linked freight and intermodal should translate into better incremental revenue capture if North American industrial activity stabilizes. CN's auto strength is higher quality than a one-quarter commodity shipment spike, but its weaker intermodal and forestry trends imply less broad-based end-market momentum. With rail valuations sensitive to long-bond yields, a traffic-driven rerating is unlikely until yields stabilize; near-term upside is therefore more likely to come through estimate revisions than multiple expansion.

The key second-order signal is divergence within agricultural inputs. Strong grain movements alongside weaker fertilizer and potash volumes can mean either improved farm export throughput without a new planting-cycle capex impulse, or a temporary channel drawdown. The former benefits CP's network now but does not support a durable fertilizer recovery; it is neutral-to-negative for Nutrien (NTR) and Mosaic (MOS) unless spring order indicators inflect. Coal weakness remains a structural mix headwind, particularly if power demand softens or export thermal coal prices decline, limiting the value of aggregate carload growth.

Expect comparisons to become materially less favorable over the next one to three months, raising the bar for Q4 guidance. Consensus may over-credit reported volume growth without separating price, fuel surcharge and mix; the investable question is whether revenue-ton-miles and operating ratio guidance move. A sustained rise in yields would also compress rail multiples even if volumes beat, making a relative trade preferable to an outright sector beta position.

Key Decisions for Investors

• Initiate a 1-3 month long CP / short CNR pair, sized market-neutral. CP has the better current volume breadth and greater potential for positive Q3 estimate revision; target 5-8% relative outperformance. Exit if CP's intermodal growth turns negative or fertilizer/potash weakness deepens materially, signaling broader Prairie demand deterioration.
• Do not use CSX as a direct read-through trade. Instead, place a Q4 earnings alert: consider long CSX only if eastern intermodal and merchandise volumes accelerate independently of Canadian data and management maintains pricing above wage inflation; absent that confirmation, elevated yields leave limited multiple upside.
• Watch NTR and MOS for a contrarian long entry rather than buying on current rail data. A reversal in CP fertilizer/potash carloads over two consecutive monthly reports would be an early logistics confirmation of restocking; until then, avoid treating grain strength as evidence of an ag-input recovery.
• For existing rail longs, hedge duration risk through a modest short IYT or reduce gross exposure if the 10-year Treasury yield breaks to new cycle highs. The falsifier for the positive traffic thesis is a Q4 revenue-ton-mile guide below volume growth, indicating mix deterioration and/or insufficient pricing.