The Railroad industry saw a speedy recovery from the pandemic-induced setbacks as travel and freight transportation needs rebounded. The global railroads market was valued at $295.80 billion in 2021 and is expected to grow at a 4.4% CAGR from 2022 to 2030.
The globalization-led industrial revolution and robust connectivity in remote areas have increased local and cross-border movements of people and commodities, bolstering the industry’s growth. Additionally, technological advancements with the introduction of Advanced Driver Assistance Systems (ADAS) should benefit this sector.
Furthermore, increased investment assistance by the government, extensive R&D efforts to build high-speed rails, and rising inclination towards public transport to reduce traffic congestion and carbon footprint are providing an impetus to this market’s growth.
Therefore, investors could consider adding fundamentally sound railroad stocks CSX Corporation (CSX) and Norfolk Southern Corporation (NSC) to their portfolios.
CSX Corporation (CSX)
CSX provides rail-based freight transportation services. The company offers rail services; and transportation of intermodal containers and trailers through a network of approximately 30 terminals, as well as other transportation services, such as rail-to-truck transfers and bulk commodity operations.
CSX’s $0.40 annual dividend yields 1.25% at its current share price. The company declared its latest quarterly dividend of $0.10 on October 6, payable on December 15, 2022. Its dividend payouts have increased at a 7.9% CAGR over the past three years and a 9.2% CAGR over the past five years. CSX has a record of 17 consecutive years of dividend growth.
For the third quarter that ended September 30, 2022, CSX’s revenue came in at $3.90 billion, up 18.3% year-over-year. Its net earnings came in at $1.11 billion, up 14.8% year-over-year, while its EPS came in at $0.52, up 20.9% year-over-year. Moreover, its cash and cash equivalents stood at $2.31 billion for the period ended September 30, 2022, compared to $2.24 billion for the period ended December 31, 2021.
Analysts expect CSX’s revenue for the fiscal quarter ending December 2022 to come in at $3.77 billion, representing an increase of 10.1% year-over-year. Its EPS is expected to increase 14.5% year-over-year to $0.48 in the same period. The company has an impressive earnings surprise history as it surpassed the consensus EPS estimates in all four trailing quarters.
The stock has gained 20.5% over the past month to close the last trading session at $31.94.
CSX has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock also has a B grade for Quality, Momentum, and Sentiment. In the 16-stock B-rated Railroads industry, CSX is ranked #6.
Click here to get additional POWR Ratings for CSX (Growth, Value, and Stability).
Norfolk Southern Corporation (NSC)
NSC and its subsidiaries transport raw materials, intermediate products, and finished goods via rail in the United States. As of December 31, 2021, the company operated approximately 19,300 route miles in 22 states and the District of Columbia.
The company has a record of paying consecutive dividends for six years. Its dividend payouts have grown at 15.2% CAGR over the past five years and 11.3% CAGR over the past three years. NSC’s $4.96 annual dividend yields 1.98% at its current share price. The company declared its latest quarterly dividend of $1.24 on October 25, payable on November 21, 2022.
NSC’s railway operating revenue increased 17.2% from the year-ago value to $3.34 billion for the third quarter ended September 2022. Its income from railway operations grew 12% year-over-year to $1.27 billion. The company reported a net income of $958 million, while its EPS surged 34% from the prior-year quarter to $4.10.
NSC’s EPS and revenue are expected to grow 12.8% and 13.7% year-over-year to $13.66 and $12.67 billion, respectively, in the ongoing fiscal year. NSC also beat the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 17.9% over the past month to close the last trading session at $250.91.
It is no surprise that NSC has an overall B rating, which equates to a Buy in our POWR Ratings system. The stock also has a B grade for Stability, Sentiment, Momentum, and Quality. In the same industry, it is ranked #5.
Beyond the POWR Rating grades I have just highlighted, you can view NSC ratings for Growth and Value here.
CSX shares were trading at $32.16 per share on Monday morning, up $0.22 (+0.69%). Year-to-date, CSX has declined -13.68%, versus a -15.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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