Railcar freight volumes are starting to recover at Canadian National Railway Co. (TSX: CNR, NYSE: CNI) mainly as a result of a sharp increase in metals and minerals and grain volumes.

So far in the fourth quarter, Canadian National’s total volumes have risen 3% compared to the same period a year ago. Revenue ton miles, which measure the weight and distance of freight shipped, are up 4% this quarter.

Metals and minerals, grain, and automotive are registering good volume increases, while coal continues its sharp downward trend. The important category of containers has declined by 1.1% so far this quarter, though the rate of decline has slowed.

The graph indicates the extent to which rail freight volumes correlate with Canadian National’s share price. Interestingly, the share price has now broken out of the sideways pattern established over the past 18 months, now that better freight volumes and profits are expected in 2017.

Canadian National is a top operator that has considerable pricing power. The company shrewdly took action to reduce operating costs in the early stages of the downturn. However, the share price is already discounting much better profits in 2017.

The stock has risen sharply since the January low and currently trades near Bay Street’s consensus 12-month target price.

Consequently, analyst sentiment is essentially neutral on the stock at present, with five “buys,” 23 “holds,” and two “sells.”

Nevertheless, analysts forecast adjusted earnings per share will grow 9.4% annually through 2020, while dividends per share are projected to grow 11.2% annually over that same period.

Despite the challenging operating environment, Canadian National has continued to generate strong free cash flows, which hit a high of C$2.4 billion over the trailing year.

Canadian National’s stock yields 1.7%, and we estimate its fair value at C$85, or US$65.