Canadian Natl Railway Co is scored 44 for moat and 77 for management. The management score rests on a return on invested capital of 8.9% and a gross margin of 44.9% — figures that describe a business earning a respectable return on what it employs. Debt sits at 1.01x equity. The moderate moat and strong management are not the same judgement, and the gap between them is where the argument about this business sits.
The valuation runs on assumptions chosen to understate rather than flatter. Growth is modelled at 4.6% a year, below the 5.0% actually measured over the last decade — the model caps growth rather than extrapolating a good run forwards. The exit multiple assumed is 9.2x. That produces an intrinsic value of $19.44, a 10-CAP price of $53.15 and a payback time price of $52.30, with the value zone set at the highest of the three, $53.15. Today's price of $117.16 is 120% above it.
The price is above the value zone and the business scores 44 for moat and 77 for management. Neither test argues for paying up here.
| Price | $117.16 |
| Market cap | $70.9B |
| P/E ratio | 21.4x |
| Return on invested capital | 8.9% |
| Gross margin | 44.9% |
| Debt to equity | 1.01x |
| Free cash flow yield | 4.0% |
| Growth rate used | 4.6% |
| Growth rate measured | 5.0% |
| Exit multiple assumed | 9.2x |
| Company | Moat | Buy price |
| Norfolk Southern Railway (NSC) | 50 | $162.59 |
| Canadian Pacific Kansas City (CP) | 65 | $43.71 |
| CSX Corporation (CSX) | 33 | $28.71 |
| Wabtec (WAB) | 81 | $128.78 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Canadian Natl Railway Co rather than accepting ours.