CSX Corporation (CSX) in Jacksonville, Fla., offers rail services, transportation of intermodal containers and trailers, and other related transportation services. Rising operating costs have adversely impacted the company amid continuing global supply chain disruptions and 40-year-high inflation rates. Furthermore, given surging market volatility, the shares of CSX have plunged 5.5% in price over the past three months and 8.9% year-to-date.
CSX’s total expenses increased 28% year-over-year to $2.06 billion for its fiscal year 2021 fourth quarter, ended Dec. 31, 2021. The company’s cash and cash equivalents balance declined 28.4% year-over-year to $2.24 billion.
However, the railroad industry is expected to grow rapidly in the coming months, driven by the surge in intermodal freight demand and increased public and private investments. Therefore, we think it could be wise to invest in fundamentally solid railroad stocks Union Pacific Corporation (UNP), Canadian National Railway Company (CNI), and Westinghouse Air Brake Technologies Corporation (WAB).
Union Pacific Corporation (UNP)
Omaha, Neb.-based UNP operates in the railway and freight transportation business in the U.S. It provides transportation services for grain products, food, refrigerated products, fertilizers, animal feeders, construction products, industrial products, ethanol products, plastics, sand, metals, forest products, and finished automobiles.
On Feb. 4, 2022, UNP announced a new share repurchase authorization, effective April 1, 2022, that allows the company to buy up to 100 million of its common shares by March 31, 2025. This authorization might reduce the total number of outstanding shares and increase the company’s EPS.,
On Feb. 2, 2022, UNP partnered with TuSimple (TSP), a global autonomous driving technology company, to be the first customer to send freight on TuSimple’s fully automated trucking route between the Tucson and Phoenix, Arizona metro areas. “This groundbreaking autonomous driving technology and our partnership provide us a significant opportunity to scale the technology in our network, proactively reducing global supply chain congestion," said Kenny Rocker, Executive Vice President – Marketing & Sales, Union Pacific.
In its fiscal 2021 fourth quarter, ended Dec. 31, UNP’s total operating revenues increased 11.5% year-over-year to $5.73 billion. UNP’s operating income rose 21.6% year-over-year to $2.44 billion. Its adjusted EBITDA grew 14.8% year-over-year to $11.60 billion. Its net income increased 24% from the year-ago value to $1.71 billion. And the company’s earnings per share increased 29.8% from its year-ago value to $2.66.
The $5.58 billion consensus revenue estimate for the fiscal first quarter, ending March 2022, represents 11.6% year-over-year growth. The $2.50 consensus EPS estimate for the current quarter indicates 25% year-over-year growth. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has gained 19.1% in price to close yesterday’s trading session at $246.27.
UNP’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
UNP has an A grade for Momentum and Quality and a B for Stability and Sentiment. Within the B-rated Railroads industry, it is ranked #4 of 16 stocks. To see additional POWR Ratings (Value and Growth) for UNP, click here.
Canadian National Railway Company (CNI)
CNI operates in the rail and related transportation business, headquartered in Montreal, Canada. The company’s portfolio of products includes petroleum, grains, fertilizers, coal, metals and minerals, forest products, and automotive products. CNI operates a network of approximately 19,500 route miles of track covering Canada and the U.S.
This January, CNI announced the repurchase of its shares under a new course issuer bid (Bid) and a 19% increase in its 2022 dividend. Under the Bid, CNI can repurchase up to 42 million common shares over 12 months. This reflects the company's solid financials and operating performance. The company is expected to maintain its growth trajectory and profitability.
Last December, CNI and Watco announced that the Surface Transportation Board (STB) had approved the sale of non-core lines and assets on approximately 650 miles of rail lines in Wisconsin and Michigan and will work together in the coming weeks to implement a seamless transition of rail lines for customers. This might promote the company’s growth and boost its financial strength.
CNI’s total revenues increased 2.7% year-over-year to CAD3.75 billion ($2.94 billion) for its fiscal 2021 fourth quarter, ended December 31. The company’s adjusted operating income rose 11.9% from the same period last year to CAD1.58 billion ($1.24 billion). Its adjusted net income increased 18.4% from the year-ago value to CAD1.21 billion ($948.97 million). And its adjusted earnings per share increased 19.6% from the year-ago value to CAD1.71.
Analysts expect CNI’s revenue for its fiscal year 2022 first quarter ending, March 2022, to come in at $2.87 billion, representing a marginal rise year-over-year. Street expects the company’s EPS to be $1.16, representing a 17.2% increase year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the four trailing quarters.
Shares of CNI increased 14.7% in price over the past year and closed yesterday’s trading session at $123.11.
CNI has an overall B rating, which translates to Buy in our POWR Ratings system. It has an A grade for Momentum, Stability, and a B for Sentiment and Quality. It is ranked #5 of 16 stocks in the B-rated Railroads industry. Click here to see CNI ratings for Growth and Value.
Westinghouse Air Brake Technologies Corporation (WAB)
WAB offers technology-based equipment, systems, and services for the freight rail and passenger transit industries worldwide. The Wilmerding, Pa.-based company operates in two segments: Freight; and Transit. It provides new and existing freight locomotives, supplies railway electronics, train control equipment, components for passenger transit vehicles, and refurbishes subway cars.
On Jan. 28, 2022, WAB announced a deal with Union Pacific Railroad (UNP) in which UNP purchased 10 FLXdrive battery-electric locomotives from WAB. The 2.5-MWh locomotives are powered exclusively by 7,000 battery cells each to provide zero-emission solutions for yard operations. The deal is expected to boost revenue streams for WAB.
On Jan. 16, 2022, WAB announced an order from BHP Western Australia Iron Ore for two FLX drive battery locomotives with an energy capacity of 7-megawatt hours (MWh). This deal with WAB might boost the company’s profitability and revenues.
In its fiscal year 2021 fourth quarter, ended December 31, WAB’s net sales increased 2.4% year-over-year to $2.07 billion. The company’s gross profit grew 28.9% year-over-year to $652 million. WAB’s net income rose 121.8% from the prior-year quarter to $193 million. Its net income attributable to Wabtec shareholders grew 115.9% year-over-year to $190 million, and its earnings per common share increased 121.7% from its year-ago value to $1.02.
A $2.01 billion consensus revenue estimate for its fiscal first quarter, ending March 2022, represents 9.9% year-over-year growth. The $1.17 consensus EPS estimate for the current quarter indicates 31.3% year-over-year growth. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of all the trailing four quarters.
WAB has gained 2.8% in price year-to-date and 27.7% over the past year. It closed yesterday’s trading session at $94.7.
The company has an overall B rating, which translates to Buy in our proprietary rating system. WAB has a grade of B for Growth and Quality. Among the 16 stocks in the B-rated Railroads industry, it is ranked #3. Click here to see the additional POWR Ratings for Value, Momentum, Sentiment, and Stability for WAB.
UNP shares were trading at $245.05 per share on Wednesday afternoon, down $1.22 (-0.50%). Year-to-date, UNP has declined -2.73%, versus a -10.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Madhavi Taneja
Madhavi is a seasoned financial analyst with a focus in valuing early-stage technology companies and evaluating potential mergers and acquisitions. After majoring in economics, she developed a deep understanding of investment strategies while working with EX Service.
Forget CSX Corp., Buy These 3 Railroad Stocks Instead StockNews.com
