The railroad industry suffered a significant setback amid the COVID-19 pandemic as travel restrictions were imposed. However, with a robust vaccination program and the economy’s gradual recovery, the industry is regaining some momentum. Continuing supply-chain disruptions are also fostering rising demand for rail and freight services. According to a trains.com report, the railroad industry is expected to reach $61 billion in new revenue by 2030.
The recently passed bi-partisan $1.2 trillion infrastructure bill includes $66 billion in freight and passenger rail investment, which should significantly boost the industry’s prospects. According to the Federal Railroad Administration, 28% of U.S. freight is moved around the country by rail, which is likely to increase substantially in the next couple of decades. In addition, the demand for battery-electric trains is also surging, owing to increased environmental concerns and cost savings.
So, we think it could be wise to add quality railroad stocks CSX Corporation (CSX), Norfolk Southern Corporation (NSC), and Westinghouse Air Brake Technologies Corporation (WAB) to one’s portfolio now. They are expected to gain this month and beyond.
CSX Corporation (CSX)
Transportation company CSX, which is headquartered in Jacksonville, Fla., offers rail services, transportation of intermodal containers and trailers, and other transportation services, such as rail-to-truck transfers and bulk commodity operations. It operates an approximately 19,500 route mile rail network.
On July 1, 2021, CSX acquired Quality Carriers, the largest provider of bulk liquid chemicals transportation in North America, for $546 million in cash. This is expected to help expand the company’s reach and its access to new products, markets, and regions through a unique and competitive multimodal solution that leverages the reach of truck transportation with the cost advantage of rail-based services.
CSX’s revenue increased 24.3% year-over-year to $3.29 billion for its fiscal third quarter, ended September 30, 2021. Its operating income came in at $1.44 billion, up 25.9% year-over-year. Furthermore, its net earnings increased 31.5% year-over-year to $968 million, while its EPS came in at $0.43, representing a 34.4% year-over-year rise.
Analysts expect CSX’s revenue to increase 17.5% year-over-year to $12.43 billion in its fiscal 2021. The company’s EPS is expected to grow 28.9% year-over-year to $1.56 in the current year. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 19.4% in price to close yesterday’s trading session at $36.48.
CSX’s strong fundamentals are reflected in its POWR Ratings. CSX has an overall POWR Rating of B, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has a B grade for Momentum, Sentiment, and Quality. Within the B-rated Railroads industry, it is ranked #4 of 16 stocks. Click here to see the additional POWR Ratings for Growth, Value, and Stability for CSX.
Norfolk Southern Corporation (NSC)
Together with its subsidiaries, NSC engages in the rail transportation of raw materials, intermediate products, and finished goods in the United States. Currently, it operates around 19,300 route miles in 22 states and the District of Columbia. NSC is based in Atlanta, Ga.
NSC’s total railway operating revenues increased 13.8% year-over-year to $2.85 billion for its fiscal third quarter, ended September 30, 2021. The company’s income from railway operations came in at $1.14 billion, up 21% year-over-year. Its net income increased 17.1% year-over-year to $753 million.
Analysts expect NSC’s revenue to be $11.13 billion in its fiscal year 2021, representing a 13.7% year-over-year rise. In addition, the company’s EPS is expected to increase 30.6% year-over-year to $12.08 in the current year. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 15.2% in price to close yesterday’s trading session at $279.73.
NSC’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has a B grade for Momentum, Stability, Sentiment, and Quality.
Westinghouse Air Brake Technologies Corporation (WAB)
Wilmerding, Pa.-based WAB provides technology-based equipment, systems, and services for the freight rail and passenger transit vehicle industries. The company operates through two segments: Freight and Transit.
On October 13, WAB inaugurated a world-class global engineering lab in Bengaluru, India, to enable rail component design and performance. Eric Gebhardt, Wabtec’s Executive Vice President and Chief Technology Officer, said, “The India site is an important engineering hub for our company. The Wabtec India Technology Center and this global engineering lab are vital to our strategy to develop sustainable solutions for our customers worldwide.”
WAB’s net sales came in at $1.91 billion for its fiscal third quarter, ended September 30, 2021, up 2.2% year-over-year. The company’s net income was $131.8 million, representing a 2.6% year-over-year rise. Its EPS increased 3% year-over-year to $0.69.
Analysts expect WAB’s revenue to increase 6.7% year-over-year to $8.46 billion in its fiscal 2022. Over the past year, the stock has gained 30.6% in price to close yesterday’s trading session at $96.05.
It is no surprise that WAB has an overall B rating, which equates to a Buy in our POWR Ratings system. Also, the stock has a B grade for Growth and Quality. Click here to see WAB’s ratings for Value, Stability, Momentum, and Sentiment also. WAB is ranked #3 in the Railroads industry.
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CSX shares were trading at $36.33 per share on Wednesday morning, down $0.15 (-0.41%). Year-to-date, CSX has gained 20.91%, versus a 26.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...
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