With the continued revival of the industrial sector and the rising need to transport raw materials, the railroad industry is well-positioned to benefit. Therefore, quality railroad stocks Westinghouse Air Brake Technologies Corporation (WAB), West Japan Railway Company (WJRYY), and L.B. Foster Company (FSTR) could be worth investing in now.
The growing need for rail freight transport will likely drive the industry’s growth. Rail freight is the movement of commodities by train, as opposed to air, ocean, or road transit, enabling a greater volume of cargo to be delivered over longer distances.
In 2022, freight rail provided more than 95% of overall rail transportation revenues of $113 billion. Rail transportation, which is both reliable and cost-effective, leads to greater productivity, competitiveness, and growth for businesses that rely on it.
Furthermore, driven by fast industrialization and strong tourism expansion, the global railroad market is expected to grow at a CAGR of 4.7%, reaching $427.72 billion by 2030.
Let’s delve deeper into the fundamentals of the featured stocks.
Westinghouse Air Brake Technologies Corporation (WAB)
WAB provides technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries globally. The company operates through two segments: Freight and Transit.
On June 16, 2023, WAB announced the acquisition of L&M Radiator, Inc., a leading heavy-duty equipment radiators and heat exchangers manufacturer.
President of Wabtec’s Freight & Industrial Components business, Mike Fetsko, said, “We are excited to welcome L&M Radiator to Wabtec. This transaction will further Wabtec’s presence in premium heat transfer solutions and will extend and complement Wabtec’s mining products portfolio. In addition, L&M’s technology further enhances Wabtec’s mission to develop clean energy solutions for operations in mining.”
WAB’s trailing-12-month EBIT margin of 12.84% is 32.3% higher than the industry average of 9.71%. Its trailing-12-month EBITDA margin of 17.79 is 32.8% higher than the industry average of 13.40.
WAB has paid dividends for 26 consecutive years. Over the last three years, WAB’s dividend payouts have grown at 10.1% CAGR. WAB’s four-year average dividend yield is 0.64%. Its forward annual dividend of $0.68 translates to a 0.64% yield.
During the fiscal first quarter that ended March 31, 2023, WAB’s net sales increased 13.9% year-over-year to $2.19 billion, while its gross profit increased 11.8% year-over-year at $665 million.
Its adjusted income from operations increased 12.9% year-over-year to $360 million, while its adjusted net income increased 11.9% from the year-ago value to $235 million. In addition, its adjusted EPS increased 13.3% year-over-year to $1.28.
The consensus revenue estimate of $8.89 billion for the year ending December 2023 represents a 6.3% increase year-over-year. Its EPS is expected to grow 11.1% year-over-year to $5.40 for the same period. It surpassed EPS estimates in all four trailing quarters. WAB’s shares have gained 27.6% over the past nine months to close the last trading session at $105.97.
WAB’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
WAB has a B for Growth, Stability, Sentiment, and Quality. Within the A-rated Railroads industry, it is ranked #4 out of 15 stocks. Click here for the additional POWR Ratings for Momentum and Value for WAB.
West Japan Railway Company (WJRYY)
Based in Osaka, Japan, WJRYY provides passenger railway transport services in Japan. The company operates through Transportation Operations; Retail Business; Real Estate Business; and Other Businesses segments.
WJRYY’s trailing-12-month EBITDA of 17.58% is 31.2% higher than the industry average of 13.40%. Its trailing-12-month CAPEX/Sales of 17.63% is 517.2% higher than the industry average of 2.86%.
WJRYY has paid dividends for 11 consecutive years. WAB’s four-year average dividend yield is 2.23%. Its forward annual dividend of $0.90 translates to a 2.13% yield.
WJRYY’s operating revenues increased 35.3% year-over-year to ¥1.40 trillion ($10.18 billion) in the fiscal year quarter that ended March 31, 2023. Its profit came in at ¥93.87 billion ($684.68 million), compared to a loss of ¥110.76 billion in the previous-year quarter.
Also, its operating income came in at ¥83.97 billion ($612.46 million), compared to an operating loss of ¥119.09 billion in the previous-year quarter.
Analysts expect WJRYY’s revenue to increase 9.8% year-over-year to $6.38 Billion for the year ending March 2024. The stock has gained 15.4% over the past year to close the last trading session at $42.12.
WJRYY’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #5 in the Railroads industry. It has a B for Momentum, Sentiment, and Stability. To see additional WJRYY’s ratings for Growth, Value, and Quality, click here.
L.B. Foster Company (FSTR)
FSTR provides engineered and manufactured products and services for building and infrastructure projects worldwide.
FSTR’s trailing-12-month asset turnover ratio of 1.50x is 88.4% higher than the 0.80x industry average.
FSTR’s net sales increased 16.9% year over year to $115.49 million in the first quarter that ended March 31, 2023. Also, its gross profit increased 41.6% year-over-year to $23.29 million, and adjusted EBITDA increased 54.3% year-over-year to $4.48 million.
Street expects FSTR’s revenue to increase 6.4% year-over-year to $568.37 million for the year ending December 2024. Its EPS is expected to grow 98.1% year-over-year to $1.05 for the same period. The stock has gained 53% over the past six months to close the last trading session at $14.
FSTR has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Growth, Stability, and Sentiment. It is ranked #2 in the same industry.
Beyond what is stated above, we’ve also rated FSTR for Value, Momentum, and Quality. Get all FSTR ratings here.
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WAB shares were trading at $107.27 per share on Thursday morning, up $1.30 (+1.23%). Year-to-date, WAB has gained 7.85%, versus a 15.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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