All Aboard! 3 Railroad Stocks That Won't Stop Chugging
Railroad companies have solid competitive advantages, making it hard for new entrants to disrupt them. They are also recession-resilient owing to their key role in creating a functioning society. Investors should consider fundamentally sound railroad stocks Canadian National Railway Company (CNI), Alb CSX Corporation (CSX), and Westinghouse Air Brake Technologies Corporation (WAB).
Railway transportation can transport bulk commodities to remote areas, owing to its robust and cost-effective connectivity, railroads beat other forms of transportation, such as trucking, by a wide margin.
In addition to the Biden Administration announcing $233 million in grants last year to upgrade intercity passenger rail service across the country, the fiscal year 2024 budget called for an investment of over $1 billion to improve core safety efforts and critical rail infrastructure.
Additionally, the Biden administration has significantly expanded standards to require that federally funded infrastructure projects use American-made iron, steel, construction materials, and manufactured products. This could help boost the over-sales and earnings of railroads due to the increased transportation of materials required in these projects.
Driven by rapid industrialization, coupled with significant growth in the tourism industry, the global railroad market is expected to grow at a CAGR of 7.9%, reaching $1.20 trillion by 2030.
Given this backdrop, fundamentally sound railroad stocks CNI, CSX, and WAB could be wise watchlist additions. Furthermore, during uncertain times, these companies have proven to create shareholder value, as evidenced by their resilient dividend payments, which underline their solid financial footing and strong performance.
Canadian National Railway Company (CNI)
Headquartered in Montreal, Canada, CNI is engaged in the rail and related transportation business. Its services include rail, intermodal, trucking, and supply chain services. Further, the company operates a network of 20,000 route miles of track and shipping in Canada and the United States.
On March 27, CNI, Trealmont Transport Inc. (Montship Inc.), and Kaptan US LLC reached an agreement to build a multimodal transload facility in the Calgary Logistics Park of CN. It is anticipated that the new facility will be operational by the third quarter of 2024.
"We are extremely happy to partner with Montship and Kaptan and welcome them to CN's Logistics Park in Calgary. This new facility will provide value to our customers and the regional economy by leveraging CN's robust network and two options to Asian markets via the Ports of Vancouver and Prince Rupert,” said Dan Bresolin, Vice-President, Intermodal, CN.
On January 24, CNI approved the repurchase of its shares under a new normal course issuer bid and an 8% increase in the 2023 dividend on its outstanding common shares. It declared a quarterly dividend of C$0.79 per share, payable on March 31, 2023.
The company’s four-year average dividend yield is 1.62%, and its current dividend translates to a 1.97% yield on prevailing prices. Its dividend payouts have grown at an 11.2% CAGR over the past three years and an 11.3% CAGR over the past five years.
In the fiscal fourth quarter that ended on December 31, 2022. CNI’s total revenue increased 21% year-over-year to C$4.54 billion ($3.35 billion). Its adjusted operating income increased 21.1% year-over-year to C$1.91 billion ($1.41 billion). The company’s adjusted net income and adjusted EPS came in at C$1.42 billion ($1.05 billion) and C$2.10, up 17.3% and 22.8% year-over-year, respectively.
Street expects CNI’s revenue to increase 7.9% year-over-year to $3.12 billion for the fiscal first quarter (ending March 31, 2023). Its EPS is expected to increase 21.4% year-over-year to $1.25 in the same period. Moreover, it surpassed the EPS estimates in three of the four trailing quarters.
The stock has gained 7.7% over the past six months to close the last trading session at $116.30.
CNI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability, Sentiment, and Quality. Among the 15 stocks in the B-rated Railroads industry, it is ranked #3. To see additional POWR Ratings for Growth, Value, and Momentum for CNI, click here.
CSX Corporation (CSX)
CSX provides rail-based freight transportation services, including traditional rail service and transport of intermodal containers and trailers, and other transportation services, such as rail-to-truck transfers and bulk commodity operations. It categorizes its products into primary lines of business, such as merchandise, intermodal, coal, and trucking.
On March 15, CSX declared that it is expanding its ground-breaking industrial site selection program to accommodate the rising demand for new manufacturing facilities with rail access.
“The CSX Select Site program has been a tremendous success and is increasingly in demand by companies seeking to access the advantages of rail for improving supply chain efficiency while reducing their carbon footprint and meeting sustainability goals,” said Kevin Boone, CSX executive vice president of Sales and Marketing.
On the same day, CSX paid a quarterly dividend of $0.11 per share, reflecting a 10% increase. The company’s four-year average dividend yield is 1.25%, and its current dividend of $0.44 translates to a 1.49% yield on prevailing prices. Its dividend payouts have grown at a 7.9% CAGR over the past three years and an 8.5% CAGR over the past five years. Also, it has a record of 18 years of consecutive dividend growth.
CSX’s revenue increased 8.5% year-over-year to $3.73 billion for the fourth quarter that ended December 31, 2022. The company’s operating income came in at $1.46 billion, representing an increase of 6.8% year-over-year, while its net earnings increased 9% from the prior-year quarter to $1.02 billion. In addition, its EPS rose 16.7% year-over-year to $0.49.
Analysts expect CSX’s EPS and revenue to increase 8.6% and 5.2% year-over-year to $0.42 and $3.59 billion, respectively, for the fiscal first quarter (ending March 31, 2023). It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the four trailing quarters.
CSX’s shares have gained 10.7% over the past six months to close the last trading session at $29.50.
CSX’s POWR Ratings reflect its promising outlook. It has a B grade for Quality. It is ranked #4 out of 15 stocks in the same industry. Click here to see the other ratings of CSX for Growth, Value, Momentum, Stability, and Sentiment.
Westinghouse Air Brake Technologies Corporation (WAB)
WAB is a provider of 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.
Last year, in November, WAB announced the acquisition of Super Metal, a supplier of automated vehicles and equipment solutions that support rail operations. While complementing its maintenance portfolio, this acquisition is expected to accelerate the expansion of its footprint into international markets.
On February 15, backed by its strong cash flows, the company announced a $750 million share buyback reauthorization and a 13% increase in the quarterly dividend to $0.17 per share. This dividend was paid to its shareholders on March 10, 2023. Its four-year average dividend yield is 0.65%, and its current dividend of $0.68 translates to a 0.69% yield on prevailing prices.
Its dividend payouts have grown at an 8.9% CAGR over the past three years and a 6.2% CAGR over the past five years.
During the fiscal fourth quarter that ended on December 31, 2022, WAB’s net sales increased 11.2% year-over-year to $2.31 billion, while its gross profit remained flat year-over-year at $652 million. Its adjusted income from operations increased 5.4% year-over-year to $352 million, while its non-GAAP net income grew 5.8% from the year-ago value to $237 million. In addition, its adjusted EPS increased 10.2% year-over-year to $1.30.
The consensus revenue estimate of $2.13 billion for the first quarter ending on March 31, 2023, represents a 10.5% improvement year-over-year. The consensus EPS estimate of $1.20 for the current quarter indicates a 6.3% increase from the same period last year. WAB surpassed the consensus EPS estimates in each of the trailing four quarters, which is promising.
Over the past six months, the stock has gained 22% to close the last trading session at $99.22.
WAB’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. It also has a B grade for Growth, Stability, and Quality. Within the same industry, it is ranked #2 of 15 stocks.
Click here to see the additional ratings for WAB (Value, Momentum, and Sentiment).
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CNI shares were trading at $117.24 per share on Friday afternoon, up $0.94 (+0.81%). Year-to-date, CNI has declined -0.90%, versus a 6.86% rise in the benchmark S&P 500 index during the same period.