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A Canadian National Railway Co. rail car carries fuels past a petroleum plant in Montreal on Saturday, Nov. 5, 2011.Brent Lewin/Bloomberg

Expectations for lower crude-by-rail volumes amid plunging oil prices have prompted one analyst to cut the profit forecasts for the six major North American railways.

Fadi Chamoun, an equities analyst with Bank of Montreal, said profit growth should remain strong in the rail sector, including Canadian Pacific Railway Ltd. and Canadian National Railway Co., but he is making "slight reductions" to earnings targets for 2015 and 2016.

Oil prices have plunged by 47 per cent to $56 (U.S.) a barrel since July, raising the prospect producers will reduce production or balk at the cost of using trains instead of pipelines to move oil to refineries.

"Given the sharp decline in oil prices, we have moderated our assumed growth in crude by rail across the rail sector," Mr. Chamoun said in a research report.

Calgary-based CP's target per-share profit is cut to $11 from $11.20 for 2015, and to $13 from $13.65 in 2016, Mr. Chamoun said. At CN, the 2015 target is raised to $4.19 from $4.12, but reduced to $4.63 from $4.68 for 2016.

CP has said it expects to haul 200,000 carloads of oil in 2015, from about 125,000 in 2014, and that the plunge in oil prices will not change that. The company says any decline in revenue from moving oil will be offset by a saving in fuel costs and a rise in demand for freight as lower energy costs provide a lift to the economy.

Mr. Chamoun is less optimistic, and reduced CP's 12-month share-price outlook to $250 from $260 but maintained an "outperform" rating.

"Our revised forecast for CP Rail assumes 161,000 crude carloads in 2015, modest growth in 2016 and flat volume afterwards," Mr. Chamoun said, adding he expects crude prices will rise from current levels and support a "steady increase in North American production."

CP's third-quarter report shows it gets about 7 per cent of its revenue from moving oil, drill pipes and sand for hydraulic well fracturing, making it the most exposed to the energy sector of the big railways. (CN does not break out its oil revenue, but is estimated to get about 4 per cent of its revenue from the energy business. Other analyst estimates put the figure for both companies at closer to 10 per cent.)

Near-term production in Alberta's oil sands is not expected to fall because most the projects are run by large well-funded companies. By 2016, smaller budgets will cut production growth and have a "modest impact" on demand for crude by rail, Mr. Chamoun said, adding that the biggest threat to moving crude by rail is new pipeline capacity. Both CN and CP serve the Canadian oil patch.

The other source of demand for crude shipments is the Bakken region of North Dakota, a region where higher-cost production is more vulnerable to lower prices. The region is served by CP and BNSF Railway Co.

Over all, Mr. Chamoun is confident CP and the rail sector in general can outperform the markets and the economy, even as lower oil fuel prices could give a lift to the rival trucking industry.

"We believe that sector valuation will continue to be supported at levels consistent with cyclical highs notwithstanding the modestly lower growth assumptions from the energy segment," he wrote. "The Class 1 railroads are expected to deliver seven per cent or more organic growth, which is amongst the highest in the industrial sector, and convert this growth into mid- to high-teens earnings growth through positive operating and financial leverage."