Thanks to the rapid adoption of innovation, the railroad industry is rapidly growing and attracting high demand. Additionally, the global railroad market is being propelled by rapid industrialization and tourism growth, government investment, and a preference for public transportation to reduce traffic congestion and carbon emissions.
So, it could be wise to add railroad stocks Canadian National Railway Company (CNI) and Westinghouse Air Brake Technologies Corporation (WAB) to one’s watchlist now.
Swift advancements in digital technology are enabling travel operators to provide customers with a more convenient experience through the implementation of real-time passenger information systems, improved mobile connectivity, and better station facilities.
These developments are contributing to the resurgence of rail travel. As a result, the global passenger service system is projected to experience a CAGR of more than 9.4% until 2032.
Moreover, IMARC Group expects the global railroad market to reach $503.30 billion by 2028, exhibiting a 4.1% CAGR. Due to the globalization-induced industrial revolution, the rising number of local and cross-border movements of travelers and commodities is facilitating market growth.
In addition, the sector is experiencing a boost in growth due to factors, such as government providing more investment assistance, increased efforts in research and development for constructing high-speed railways.
Let’s discuss the stocks mentioned above in detail:
Canadian National Railway Company (CNI)
CNI engages in rail and related transportation business and operates a network of 20,000 route miles of track and shipping in Canada and the United States.
CNI’s trailing-12-month EBITDA margin of 56.25% is 325.8% higher than the 13.21% industry average. Its trailing-12-month gross profit margin of 56.25% is 93.7% higher than the 29.03% industry average. Its trailing-12-month net income margin of 29.92% is 358.3% higher than the 6.53% industry average.
On January 24, CNI declared a quarterly dividend of $0.57 per share, payable on March 31, 2023. Its annual dividend of $2.36 yields 1.98% on the current market prices, higher than its four-year average dividend yield of 1.62%. The company has raised its dividend at a CAGR of 11.2% over the past three years.
CNI’s total revenues increased 21% year-over-year to $4.54 billion for its fiscal fourth quarter, which ended December 31, 2022. Also, its freight revenues increased 22.7% year-over-year to $ 4.40 billion, and adjusted operating income increased 21.1% year-over-year to $1.91 billion.
Moreover, adjusted net income came in at $1.42 billion, up 17.3% year-over-year, while its adjusted earnings per share increased 22.8% year-over-year to $2.10.
Analysts expect CNI’s revenue to increase 5.1% year-over-year to $3.04 billion during the fiscal first quarter ending March 2022. The company’s EPS is expected to grow 18.7% year-over-year to $1.22 in the current quarter. In addition, it surpassed the consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.
Over the past nine months, the stock has gained 7.8% in price to close its last trading session at $116.20.
CNI’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Also, the stock has a B grade for Stability, Sentiment, and Quality. Within the B-rated Railroads industry, it is ranked #3 of 15 stocks.
Click here to see the additional POWR Ratings for Growth, Value, and Momentum for CNI.
Westinghouse Air Brake Technologies Corporation (WAB)
WAB provides technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries worldwide. The company operates in two segments: Freight and Transit.
On February 27, WAB announced leadership moves to accelerate the long-term growth strategy in the Services and Transit businesses, as well as the company’s overall sustainability and business development initiatives.
Rafael Santana, Wabtec’s President and CEO, said, “We have a high-performing leadership team who have been instrumental in driving the company’s success in a challenging business environment. These leadership moves will enable us to build upon the strong momentum we have across our business and ensure we continue to deliver superior value for our customers, shareholders, employees, and various stakeholders.”
WAB’s trailing-12-month EBITDA margin of 17.89% is 35.4% higher than the 13.21% industry average. Its trailing-12-month gross profit margin of 30.89% is 6.4% higher than the 29.03% industry average. Its trailing-12-month net income margin of 7.57% is 16% higher than the 6.53% industry average.
The company’s annual dividend of $0.68 yields 0.69% on the current market prices, higher than its four-year average dividend yield of 0.65%. The company has raised its dividend at a CAGR of 8.9% and 6.2% over the past three and five years, respectively.
During the fiscal fourth quarter that ended December 31, 2022, WAB’s net sales increased 11.2% year-over-year to $2.31 billion, while its gross profit remained flat at $652 million. Its freight net sales increased 17.1% year-over-year to $1.67 billion, while its adjusted EPS increased 10.2% year-over-year to $1.30.
Street expects WAB’s revenue to increase 10.8% year-over-year to $2.13 billion in the fiscal first quarter ending March 2023. Also, its EPS is expected to increase 6.9% year-over-year to $1.21 in the same quarter. The company has surpassed the consensus EPS estimates in each of the trailing four quarters.
WAB’s shares have gained 15.2% over the past nine months to close the last trading session at $98.82.
It’s no surprise that WAB has an overall B rating, which equates to a Buy in our POWR Ratings system.
WAB has a B grade for Growth, Stability, and Quality. The stock is ranked #2 in the same industry.
To access additional grades for Momentum, Value, and Sentiment, click here.
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CNI shares were trading at $117.13 per share on Tuesday afternoon, up $0.93 (+0.80%). Year-to-date, CNI has declined -0.48%, versus a 2.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
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