Taking the midnight train to strong returns

On wednesday, Trudeau announced the winning consortium that would be responsible for the two-year co-development phase of the Alto project, a high-speed rail (HSR) initiative connecting Toronto to Quebec City that has been decades in the making.

Federal spend during this phase could reach $4B, with the total cost closing in on ~$30B, based on data we went through from previously published studies.

We’re years out, but the impact to the country, and by extension the companies within it, could be massive. But it’s not all positive.

The obvious winners from a nation-building project like this are construction and engineering firms, which have performed well as of late.

AtkinsRealis (ATRL) is the easy pick, given it was part of the winning bid for co-development, so it should see backlog support for years to come in its services business.

We’d highlight that it’s not all about the headline winner though, as there should be substantial subcontracting opportunities for other Canadian names that weren’t part of the winning bid.

Transportation (both air and rail) is the other sector that’s directly in the scope of a project like this, and it’s a mixed bag.

On one hand, CN Rail (CNR) looks well-positioned, given it owns the majority of the lines VIA Rail’s service runs on today. With a dedicated track for HSR, CNR will lose revenue from VIA’s usage fees (immaterial), in exchange for more efficient operations in its busiest shipping corridor… great trade!

On the other hand, Air Canada (AC) looks the most threatened of the group, with studies of existing HSR implementations suggesting that demand shifts rapidly to rail from air travel for anything under 5 hours.

Given that domestic flights represent over a quarter of AC’s passenger revenue, the potential impact is meaningful (though only a portion could be disrupted by Alto).

It’s not all doom and gloom for AC though as we discuss in the note, as it appears to be taking the proactive approach over the combative one, by being a part of the winning bid and influencing development.

If the above link won’t work, try this: https://www.bullpen.finance/content/40

Don’t get me wrong, we should build high-speed trains, they’re incredible. But with Canada’s track record on big infrastructure projects… don’t be surprised if we get a few adjustments higher on the cost front… and maybe a few delays to boot.

It’s okay though, I was doing some high value research and think I have the solution to any potential cost overruns - RAILFANS.

Have you seen these people? As diehard as a wounded leafs fan praying this is the year, but for trains.

The hobby (or passion, not trying to offend any track chasers out there) is prevalent in areas with existing HSR (Japan, France, etc.) and with the Alto project set to be Canada’s entry into the big leagues, there’s money to be made in a launch event.

• Trump backs idea to send some DOGE savings to American citizens

• Loblaw expects to invest $10 billion into the Canadian economy over the next five years, including $2.2 billion in 2025

• Prime Minister Justin Trudeau meets with premiers to discuss Canada-U.S. relations and Arctic security

TFI International (TFII) posted an ugly quarter, with revenue of $2.08B missing the street at $2.18B. The bigger miss was on profitability though, with adj. EBITDA of $315M missing the street’s $356M. The weakness was primarily driven by the Less-Than-Truckload (LTL) segment, particularly in the U.S. where revenues declined 10% Y/Y. The company also signaled it plans to relocate its HQ from Montreal to America to better align with its future growth plans and shareholder base. Another one bites the dust.

YESTERDAY’S EARNINGS

Innergex Renewable (INE) reported strong Q4 results with $210M in adj. EBITDA, well ahead of the street at $181M, though it got some help from a $16M one-time gain from tax credits. Its hydro assets produced at 102% of the long-term average, which is notable given the criticism they’ve drawn for underperformance in recent years. The company gave 2025 guidance, expecting $825-875M in adj. EBITDA (+12% Y/Y).

Hydro One (H) reported solid results and outlook, with EPS of $0.33 beating the street at $0.30. The stock was down nearly 2% on the day, which doesn’t come as a surprise when you think about expectations priced into the name. It was one of the most expensive utility stocks in North America, but with continued earnings growth and a sideways share price over the past half-year, it now trades at 21.5x NTM P/E. EPS growth guidance was raised to 6-8% annually from 2023-2027 (was 5-7%), driven mainly by:

TODAY’S EARNINGS

YESTERDAY’S ECONOMIC RELEASES

TODAY’S ECONOMIC RELEASES