Despite rising COVID-19 omicron cases, the U.S. economy reported strong GDP growth of 6.9% during the October - December period, exceeding the estimated 5.5%. The GDP growth was fueled by record holiday retail sales and increased private inventories.
However, the railroad industry was adversely impacted by reduced consumer spending last month amid rising omicron variant cases and global supply chain issues. In fact, according to the Association of American Railroads, U.S. weekly rail traffic fell 9.8% year-over-year for the week ended Jan. 22, 2022. However, as omicron concerns fade, consumer spending is expected to bounce back, driving a strong comeback for the railroad industry. According to a Reportlinker.com report, the global rail freight market is expected to grow at a 2.2% CAGR over the next four years to $29.29 billion by 2026.
Given this backdrop, we think it could be wise to add fundamentally strong railroad stocks L.B. Foster Company (FSTR) and USD Partners LP (USDP) to one’s portfolio. Strong investor interest underpinned these stocks’ resilience during the recent market correction.
L.B. Foster Company (FSTR)
FSTR in Pittsburgh, Pa., provides products and services for the rail industry and solutions to support critical infrastructure projects. The company operates in the Rail Technologies and Services and Infrastructure Solutions segments.
On Sept.27, 2021, FSTR announced that it had completed the sale of its steel piling products line to J.D. Fields & Company, Inc. President and CEO of FSTR John Kasel said, “We are pleased with the results of the transaction, which will help us improve shareholder value by allocating capital to businesses with better growth and profitability outlooks.”
FSTR’s net sales increased 9.9% year-over-year to $130.05 million. The company’s gross profit increased 1% year-over-year to $22.27 million. Also, its new orders increased to $138.90 million, representing an $8.40 million increase from the year-ago period.
Analysts expect FSTR’s EPS for the quarter ending March 31, 2022, to increase 191.7% year-to-year to $0.11, while its revenue for the quarter ending Dec. 31, 2021, is expected to increase 14.6% year-over-year to $132.48 million. The stock has gained 10% in price year-to-date to close the last trading session at $15.12.
FSTR’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Value, Sentiment, and Quality. In the B-rated Railroads industry, it is ranked #2 out of 16 stocks. Click here to see more of FSTR’s component grades.
USD Partners LP (USDP)
USDP designs, develops, owns, and manages large-scale multi-modal logistics centers and energy-related infrastructure for crude oil, biofuels, and other energy-related products across North America. The Houston, Tex.-based company’s segments include Terminalling services and Fleet services. Its operations include railcar loading and unloading, storage and blending in on-site tanks, inbound and outbound pipeline connectivity, and other services.
On Jan. 18, 2022, USDP announced that it had entered a five-year Terminal Services agreement with a minimum monthly throughput commitment with a major ethanol producer at its West Colton, Calif., terminal, effective from Jan.1, 2022. USDP’s Executive VP and Chief Commercial Officer Brad Sanders said, “We are committed to the transition into sustainable fuels and see our USD Clean Fuels business as a strong growth platform for USD and, potentially, the partnership. We look forward to future announcements of continued growth within clean fuels.”
For the nine months ended Sept. 30, 2021, USDP’s total revenues increased 5.5% year-over-year to $93.88 million. The company’s total operating costs declined 30.1% year-over-year to $73.07 million. Also, its net income came in at $17.85 million, compared to a $26.35 million net loss in the year-ago period. In addition, its adjusted EBITDA increased 6.1% year-over-year to $43.19 million.
For the quarter ending March 31, 2022, USDP’s EPS is expected to increase 350% year-over-year to $0.18, while its revenue for its fiscal 2022 is expected to increase 6.7% year-over-year to $132.80 million. The stock has gained 9% year-to-date to close the last trading session at $5.77.
USDP’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has an A grade for Quality and a B grade for Value, Momentum, and Stability. Within the A-rated MLPs – Other industry, it is ranked #3 of 11 stocks. To see the ratings of USDP for Growth and Sentiment, click here.
FSTR shares were trading at $15.33 per share on Tuesday afternoon, up $0.21 (+1.39%). Year-to-date, FSTR has gained 11.49%, versus a -5.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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