Morningstar DBRS Confirms Canadian National Railway Company's Credit Ratings at 'A' and R-1 (low) With Stable Trends

Published: 2026-05-07 04:29:11 ET CNR.TO

Published on 05/07/2026 at 04:29 am EDT

DBRS Limited (Morningstar DBRS) confirmed Canadian National Railway Company's (CN or the Company) Issuer Rating and Unsecured Bonds, Debentures & Notes credit rating at 'A.' Morningstar DBRS also confirmed CN's Commercial Paper credit rating at R-1 (low).

All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS

The credit rating confirmations reflect CN's stable operating performance in 2025, characterized by consistent service levels, disciplined cost management, and effective execution despite a mixed demand environment. The Company maintained strong network reliability and operating efficiency while navigating tariff related softness in select industrial commodities and modest overall volume growth. Continued improvements in train productivity, fuel efficiency, and asset utilization supported operating stability and reinforced CN's resilience amid ongoing macroeconomic challenges.

In January 2026, CN stated its intentions to allocate higher capital toward share repurchases and temporarily increase its leverage to close to 2.7 times (x) in 2026, which would then decline to 2.5x by 2027. Morningstar DBRS notes that the increase in leverage erodes meaningful financial flexibility in navigating a significantly stressed case within the current credit rating levels. Despite this, near-term challenges associated with increased friction to cross-border trade, as well as the relatively subdued economic environment, CN's overall credit risk profile should remain commensurate with the 'A' credit rating category.

In 2025, revenue modestly increased by approximately 1.5% year over year (YOY), supported primarily by stable yields, modest revenue ton mile (RTM) growth, and disciplined pricing across most commodity groups, with reported results also benefitting from a weaker Canadian dollar. Pricing gains and contractual escalators helped to offset mixed volume performance, while the elimination of the Canadian federal carbon tax program and lower fuel prices created a modest lag to top=line growth. Total RTMs rose about 1%, constrained by a soft industrial macro environment, tariff-related weakness in metals and forest products, and lingering network and labour dislocations from earlier in the year that affected certain international intermodal flows. Strength in grain, fertilizers, and energy-related commodities partially mitigated these pressures, with grain volumes improving meaningfully into late 2025. Management highlighted productivity improvements, longer trains, and improved fuel efficiency as key contributors to yield stability and margin resilience despite subdued volume growth and ongoing macro uncertainty. Adjusted EBITDA and operational cash flow (as defined by Morningstar DBRS) increased to approximately $8.7 billion (3.8% YOY) and $6.9 billion (4.2% YOY), respectively. Stronger operational cash flow increased free cash flow (FCF) after dividends to $1.0 billion (versus $920 million in 2024), even with higher capital expenditure (capex) of $3.7 billion in 2025 (up from $3.5 billion in 2024) and a 3.3% YOY rise in dividends to $2.2 billion. CN used its FCF in combination with incremental debt of $907 million to support its share repurchases of $2.1 billion in 2025. Increased EBITDA more than offset the impact from modestly higher debt, with the debt-to-EBITDA ratio (as defined by Morningstar DBRS) marginally declining to 2.49x in 2025 from 2.55x in 2024.

CREDIT RATING DRIVERS

The credit ratings could be pressured if key credit metrics continue to weaken and on a normalized and sustained basis remain outside the range considered acceptable by Morningstar DBRS for the current credit ratings. This includes, but is not limited to, the debt-to-EBITDA ratio remaining meaningfully higher than 2.5x and/or a commensurate deterioration in other key credit metrics, driven by weaker-than-expected operating performance and/or more aggressive financial management. Additionally, a prolonged period of underperformance indicative of a permanent deterioration in the Company's business risk profile would require CN to maintain stronger credit metrics to support its current credit ratings. Furthermore, and although not the base case, unsuccessful Canada-United States-Mexico Agreement negotiations could also negatively affect the credit ratings. Conversely, a sustained material improvement in key credit metrics, such as a debt-to-EBITDA ratio declining towards 1.5x, combined with management's demonstrated commitment to maintaining these metrics, could lead to a positive credit rating action.

EARNINGS OUTLOOK

While Morningstar DBRS expects U.S. and Canadian tariffs to pressure overall volumes across most sectors, it anticipates volume growth in select categories, including grain, fertilizer, oil, chemicals, and intermodal. By contrast, Morningstar DBRS expects volumes in metals and mining, automotive, forest products, and coal to remain under pressure and for CN to implement price increases across most sectors, supporting revenue growth to more than $17.5 billion in 2026 from $17.3 billion in 2025. It also expects the Company to maintain a strong emphasis on cost efficiency, including through precision scheduled railroading. As a result, EBITDA is projected to increase to approximately $8.8 billion in 2026 and more than $9.2 billion in 2027, compared with $8.7 billion in 2025. However, Morningstar DBRS cautions that significant economic disruption stemming from uncertainty surrounding U.S. trade policy could undermine the base-case outlook and lead to weaker revenue and EBITDA growth.

FINANCIAL OUTLOOK

Despite persistent geopolitical and macroeconomic uncertainty, Morningstar DBRS expects CN to continue generating solid cash flow. Operating cash flow is projected to remain higher than $6.7 billion in 2026 and exceed $7.0 billion in 2027, compared with $6.9 billion in 2025. Following the end of an investment cycle to rejuvenate the locomotive fleet and address track capacity bottlenecks, the Company will lower capex while maintaining focus on maintenance; as such, capex should decline to less than $2.8 billion in 2026, from $3.7 billion in 2025. Management retains flexibility to further defer growth capex should tariffs materially pressure volumes. Consequently, FCF net of dividends is forecast to improve to more than $1.6 billion in 2026-27 from approximately $1.0 billion in 2025. Morningstar DBRS expects a portion of this cash flow, alongside incremental debt issuance, to fund shareholder repurchases, resulting in a temporary weakening of leverage metrics in 2026, with the debt-to-EBITDA ratio rising toward 2.7x before improving to approximately 2.5x in 2027, broadly in line with 2025 levels.

CREDIT RATING RATIONALE

Comprehensive Business Risk Assessment (CBRA): a (high)/'a'

The CBRA reflects CN's extensive rail network, diversified product and customer base, industry leading operating efficiency, and consistently strong cash flow generation as well as the structural importance of the rail sector to the broader economy. The credit ratings also incorporate the potential for sustainable long term freight volume growth and further strengthening of the Company's business risk profile over the medium to long term. This prospective improvement is supported by the Canadian government's efforts to expand trade relationships with Europe, the Asia Pacific region, and Latin America, which should facilitate incremental export and import volumes through non U.S. gateways. In addition, Morningstar DBRS expects ongoing federal and provincial investments in port terminals, inland ports, and key supply chain corridors-including planned terminal expansions in Halifax; Contrecoeur, Quebec; Vancouver; Prince Rupert, British Columbia; and New Orleans-to enhance network fluidity and support higher traffic volumes, particularly for resource based and agricultural exports. The credit ratings further consider the potential benefits of strategic partnerships, such as CN's collaboration with Union Pacific Corporation and Grupo Mexico Transportes, which led to the development of a premium intermodal service connecting Canada, the U.S., and Mexico. Such initiatives will likely support medium to long term growth and could further enhance the Company's business risk profile.

These strengths are partly offset by the railway industry's high capital intensity, ongoing regulatory oversight related to safety and service, and the sector's structural maturity, which constrains long term growth relative to other cyclical industries. The credit ratings also reflect elevated risks to the U.S.-Canada trade, as well as the possibility of a material economic slowdown in the U.S. and/or Canada and the associated impact on CN's operating performance.

Comprehensive Financial Risk Assessment (CFRA): a (low)/bbb (high)

The CFRA reflects consistent and visible earnings and cash flow generation amid the Company's reasonably conservative financial policy. Morningstar DBRS notes that although CN is temporarily deviating from its long-term leverage target, it remains committed to its long-term target leverage of 2.5x.

Intrinsic Assessment (IA): 'a'

The IA is based on the CFRA and CBRA. Taking into consideration peer comparisons, among other factors, Morningstar DBRS placed CN's IA in the middle of the IA Range.

Additional Considerations: None

CN's credit ratings include no further negative or positive adjustments because of additional considerations.

TRANSACTION-SPECIFIC DISCLOSURES

This disclosure includes any financial statement adjustments that deviate materially from those contained in the issuer's published financial statements.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) at https://dbrs.morningstar.com/research/454196.

Further details on the issuer's IA can be found at https://www.dbrsmorningstar.com/research/480397.

Notes:

All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Companies in Diversified Industries, Transportation Provider Industry, (February 2, 2026) https://dbrs.morningstar.com/research/473093

Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (December 19, 2025; https://dbrs.morningstar.com/research/470156), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodology has also been applied:

Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) https://dbrs.morningstar.com/research/454196

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at [email protected].

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