3 Buy-Rated Railroad Stocks to Add to Your Watchlist: Canadian National Railway, Union Pacific, and CSX

The railroad industry was adversely impacted by reduced consumer spending last month amid surging COVID-19 cases and global supply chain issues. For the week ended Jan. 22, 2022, U.S. weekly rail traffic declined 9.8% year-over-year, according to the Association of American Railroads. This follows record revenues collected by Class I railroads in the United States in the first three quarters of 2021.

As consumer spending picks up as omicron variant concerns fade, the railway industry is poised to make a strong comeback in the coming quarters. Amid the growing demand for intermodal transport, the market size of the rail transportation industry is projected to increase 4.3% in 2022.

Given the backdrop, we think it could be wise to invest in these renowned railroad stocks: Union Pacific Corporation (UNP), Canadian National Railway Company (CNI), and CSX Corporation (CSX). These stocks have an overall rating of B, which translates to “Buy” in our proprietary POWR Ratings system.

Union Pacific Corporation (UNP)

UNP is a leading American transportation company that is in the railroad and freight transportation business. The Omaha, Neb.-based company operates through its principal operating company, Union Pacific Railroad Company (UPRR). It covers 23 states across the Western U.S.

Earlier this month, UNP announced plans to purchase 20 battery-electric locomotives from Progress Rail, a Caterpillar Company, for testing in yard operations. The investment might contribute to reducing the company’s environmental footprint and promote sustainability, in line with its goals to achieve carbon neutrality by 2050.

On January 29, UNP’s wholly-owned subsidiary, Loup logistics, acquired Precision Components Inc. (PCI Reload) transload facility in Phoenix, Arizona. The deal offers freight solutions to customers into and out of the Phoenix market. "Loup is excited about the growth potential this acquisition provides to customers seeking access to the Phoenix market,” said Josh Perkes, Loup’s vice president.

In the fiscal year 2021 fourth quarter, ended December 31, UNP’s total operating revenues increased 11.5% year-over-year to $5.75 billion. Its operating income increased 21.6% year-over-year to $2.44 billion. Its net income increased 24% from its year-ago value to $1.71 billion. 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 its fiscal first quarter, ending March 31, 2022, represents an 11.6% year-over-year growth. The $2.50 consensus EPS estimate for the fiscal first quarter indicates 24.9% 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 22.2% in price to close Friday’s trading session at $245.93.

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. Within the B-rated Railroads industry, it is ranked #5 of 16 stocks. To see additional POWR Ratings (Value, Growth, and Sentiment) for UNP, click here.

Canadian National Railway Company (CNI)

Headquartered in Montreal, Canada, CNI is engaged in the rail and related transportation business, together with its subsidiaries. It provides rail and trucking services, supply chain services, business development, and maps and network services. The company operates in more than 19,000 route miles of track spanning Canada and the U.S.

Earlier this month, CNI announced the repurchase of its shares under a new course issuer bid (Bid) and a 19% increase in the 2022 dividend. Under the Bid, CNI is permitted to repurchase up to 42 million common shares over a 12-month period. This reflects the company's strong financials. Furthermore, the company is expected to maintain its growth trajectory and profitability in the future.

Last month, CNI and Watco announced that the Surface Transportation Board had approved the sale of non-core lines and assets on approximately 650 miles in Wisconsin and Michigan. The company will work together with Watco 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.

In its fiscal 2021 fourth quarter, ended December 31, CNI’s total revenues increased 2.7% year-over-year to C$3.75 billion ($2.94 billion), and its freight revenues increased 2.3% year-over-year to C$3.59 billion ($2.81 billion). The company’s adjusted operating income rose 11.9% from the same period last year to $1.58 billion ($1.24 billion). And its adjusted net income increased 18.4% from the year-ago value to C$1.21 billion ($946 million). The company’s adjusted earnings per share increased 19.6% from its year-ago value to C$1.71.

Analysts expect CNI’s revenue for its fiscal first quarter of 2022, ending March 31, to come in at $2.86 billion, representing a marginal rise year-over-year. The Street expects the company’s EPS to be $1.16, representing a 16.7% increase year-over-year. CNI has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the four trailing quarters.

Shares of CNI have increased 15.2% in price over the past year and closed Friday’s trading session at $119.83.

CNI has an overall B rating, which translates to Buy in our Power Rating system. It has an A grade for Momentum and Stability and a B for Sentiment and Quality. It is ranked #3 of 16 stocks in the B-rated Railroads industry. Click here to see CNI ratings for Growth and Value.

CSX Corporation (CSX)

CSX is a leading transportation company that is headquartered in Jacksonville, Fla. The company provides rail-based freight transportation services, such as traditional rail service and the transportation of intermodal containers and trailers, as well as other transportation services, such as rail-to-truck transfers and bulk commodity operations, together with its subsidiaries.

Last month, CSX added a third unit in an expansion of automated inspection technology. It partnered with Duos Technologies to install a third Railcar Inspection Portal with CSX Corporation. The contract includes annual service and preventive maintenance of CSX’s system.

In its fiscal 2021 fourth quarter, ended Dec. 31, 2021, CSX’s revenue increased 21.3% year-over-year to $3.43 billion. The company’s operating income grew 12.4% year-over-year to $1.37 billion. Its net earnings rose 22.9% from the prior-year quarter to $934 million. In addition, the company’s net earnings per share increased 27.3% from its year-ago value to $0.42.

CSX’s revenues are expected to improve 19.5% year-over-year to $3.36 billion for its fiscal first quarter, ending March 31, 2022. Analysts expect CSX’s EPS for its fiscal first quarter to come in at $0.40, representing a 28% rise year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the four trailing quarters.

Over the past year, CSX gained 19.1% in price to close Friday’s trading session at $34.43.

The company has an overall rating of B, which translates to Buy in our proprietary rating system. CSX has a grade of A for Momentum and a B for Quality and Stability. Among the 16 stocks in the B-rated Railroads industry, it is ranked #4. Click here to see the additional POWR Ratings for Value, Sentiment, and Growth for CSX.

UNP shares were trading at $244.46 per share on Monday afternoon, down $1.47 (-0.60%). Year-to-date, UNP has declined -2.97%, versus a -6.05% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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