The railroad industry is expected to grow due to increased cross-border trade and industrialization. So, investing in quality railroad stocks Westinghouse Air Brake Technologies Corporation (WAB), West Japan Railway Company (WJRYY), L.B. Foster Company (FSTR), and GATX Corporation (GATX) could be worth it now.
Growing global commerce and industrialization have created enormous opportunities for the railway industry. Currently, rail shipment of goods accounts for almost 80% of total railroad sales. The global railroads market is supported by the worldwide rail transport market, which is expected to grow at a CAGR of 3% until 2028.
In addition, the heightened use of artificial intelligence in rail infrastructure technology is expected to be one of the prime drivers of the rail freight transportation market growth during the next few years.
Also, the low transportation cost of freight, increasing investments in rail transportation, and an increase in cross-border trades are significant growth drivers in the railroad sector. Moreover, increasing demand for freight rail networks and increasing investment in high-speed rail links will likely lead to sizable market demand.
As a result, the global Rail Freight Transportation market is expected to expand at a CAGR of 3.9%, reaching $217.74 billion by 2028.
Let’s discuss the stocks mentioned above in detail:
Westinghouse Air Brake Technologies Corporation (WAB)
WAB provides technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries worldwide. The company operates in two segments, Freight and Transit.
On June 16, 2023, WAB announced it had acquired L&M Radiator, Inc., a leading manufacturer of heavy-duty equipment radiators and heat exchangers.
WAB’s trailing-12-month EBITDA margin of 17.79% is 31.8% higher than the 13.50% industry average. Its trailing-12-month gross profit margin of 30.73% is 3% higher than the 29.83% industry average.
WAB pays $0.68 annually as dividends. This translates to a yield of 0.62% at the current price, compared to its four-year average dividend yield of 0.64%. Its dividend payments have grown at a CAGR of 10.1% over the past three years.
WAB’s net sales increased 13.9% year-over-year to $2.19 billion in the first quarter, which ended March 31, 2023. The company’s adjusted net income increased 11.9% year-over-year to $235 million, while its adjusted EPS rose 13.3% year-over-year to $1.28.
Analysts expect WAB’s revenue for the fiscal second quarter ended June 2023 to increase 8.8% year-over-year to $2.23 billion. The company’s EPS for the same quarter is expected to increase 8.2% year-over-year to $1.33. Additionally, it has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 34.1% over the past year to close the last trading session at $111.35.
WAB’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
WAB also has a B grade for Stability, Growth, and Quality. It is ranked #4 among 15 stocks in the A-rated Railroads industry.
To access additional ratings for WAB for Momentum, Value, and Sentiment, click here.
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 margin of 17.58% is 30.3% higher than the 13.50% industry average. Its trailing-12-month CAPEX/Sales of 17.63% is 517.2% higher than the 2.86% industry average.
WJRYY’s forward annual dividend of $0.90 yields 2.54% on the current price level. Its four-year average yield is 2.22%.
During the fiscal year that ended March 31, 2023, WJRYY’s operating revenue increased 35.3% year-over-year to ¥1.40 trillion ($9.82 billion). Its operating income came in at ¥83.97 billion ($591.11 million), compared to a loss of ¥119.09 billion ($838.34 million) in the previous-year quarter.
Also, its profit came in at ¥93.87 billion ($660.80 million), compared to a loss of ¥110.76 billion ($779.72 million) in the previous-year quarter.
Street expects WJRYY’s revenue for the fiscal first quarter ended June 2023 to be $1.54 billion. Also, the company has topped the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 17.2% over the past year, closing the last trading session at $41.20.
WJRYY has an overall rating of B, which translates to a Buy in our POWR Ratings system.
The stock has a B grade for Momentum and Stability. It is ranked #6 in the same industry.
In addition to the POWR Ratings stated above, one can access additional WJRYY’s grades for Sentiment, Growth, Value, and Quality here.
L.B. Foster Company (FSTR)
FSTR provides engineered and manufactured products and services for the building and infrastructure projects worldwide.
On July 5, FSTR announced that CXT, its incorporated subsidiary, had completed the sale of substantially all the operating assets of its prestressed concrete railroad tie business located in Spokane, WA to voestalpine Railway Systems Nortrak, LLC (Nortrak).
The company is retaining all pre-closing accounts receivable and liabilities associated with the business, while the asset sale to Nortrak includes all owned inventory associated with the line of business, as well as the related fixed assets.
FSTR’s trailing-12-month asset turnover ratio of 1.50x is 89.5% higher than the 0.79x industry average.
For the fiscal first quarter ended March 31, 2023, FSTR net sales increased 16.9% year-over-year to $115.49 million. Its gross profit increased 41.6% year-over-year to $23.29 million, while its adjusted EBITDA increased 171.6% year-over-year to $4.48 million.
FSTR’s revenue is expected to rise 7% year-over-year to $140.66 million for the fiscal second quarter ended June 2023. The company’s EPS for the same quarter is expected to increase 55.6% year-over-year to $0.28. Also, the company has topped the consensus revenue estimates in each of the trailing four quarters.
Shares of FSTR have gained 45.7% year-to-date to close the last trading session at $14.10.
FSTR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The stock has a B grade for Growth and Sentiment. Within the same industry, it is ranked #2.
Beyond what is stated above, we’ve also rated FSTR for Stability, Quality, Value, and Momentum. Get all FSTR ratings here.
GATX Corporation (GATX)
GATX operates as a railcar leasing company in the United States, Canada, Mexico, Europe, and India. It operates through three segments, Rail North America; Rail International; and Portfolio Management.
PSTX’s trailing-12-month net income margin of 12.2% is 91.6% higher than the 6.35% industry average. Its trailing-12-month gross profit margin of 72.99% is 144.7% higher than the 29.83% industry average.
GATX pays $2.20 annually as dividends. This translates to a yield of 1.72% at the current price, compared to its four-year average dividend yield of 2.24%. Its dividend payments have grown at a CAGR of 4.1% over the past three years.
GATX's total revenue increased 7% year-over-year to $338.90 million in the fiscal first quarter that ended March 31, 2023. Its net income increased 2.1% year-over-year to $77.40 million. Also, its EPS increased 2.9% year-over-year to $2.16.
The consensus EPS estimate for the fiscal second quarter that ended June 2023 of $1.66 reflects a 54.8% rise year-over-year. Its revenue estimate for the same quarter of $337.70 million indicates an improvement of 8% from the previous-year quarter.
The stock has gained 41.1% over the past nine months to close the last trading session at $127.70.
GATX’s robust prospect is reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
GATX has a B grade for Growth and Stability. It is ranked #5 in the same industry.
Click here for the additional POWR Ratings for PSTX (Momentum, Value, Sentiment, and Quality).
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WAB shares were unchanged in premarket trading Tuesday. Year-to-date, WAB has gained 11.95%, versus a 15.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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