Top Railroad Stocks for Q1 2021

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The railroad industry is one of the major components of the transportation sector and is closely tied to the economy’s growth. Railroad companies operate vast networks that transport agricultural products, packaged foods, commodities, electronics, and other goods to companies and consumers. Major companies in the industry include Union Pacific Corp. (UNP), Norfolk Southern Corp. (NSC), and CSX Corp. (CSX).

The railroad industry does not have its own benchmark, but as a part of the broader transportation sector its performance can be reasonably approximated by the iShares Transportation Average ETF (IYT). IYT has underperformed the broader market with a total return of 18.8% over the past 12 months, below the Russell 1000’s total return of 22.2%, as of December 8, 2020. All statistics in the tables below are as of December 9.

Here are the top 3 railroad stocks with the best value, the fastest growth, and the most momentum.

Best Value Railroad Stocks

These are the railroad stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

Best Value Railroad Stocks

 

Price ($) Market Cap ($B) 12-Month Trailing P/E Ratio
Greenbrier Companies Inc. (GBX) 35.05 1.2 24.0
CSX Corp. (CSX) 91.50 70.0 25.4
Canadian Pacific Railway Ltd. (CP) 336.58 45.3 26.8

Source: YCharts

  • Greenbrier Companies Inc.: Greenbrier Companies is primarily engaged in the design, manufacture, and marketing of railroad freight car equipment. The company manufactures both railcars and marine vessels, provides repair and refurbishment for intermodal and conventional railcars, and provides complementary leasing and services.
  • CSX Corp.: CSX provides domestic and international freight transportation services. The company offers rail, domestic container shipping, barging, intermodal, and contract logistics services between global hubs. The company’s rail transportation services are focused in the eastern U.S. CSX announced at the end of November that it had entered into an agreement to acquire Massachusetts-based Pan Am Railways Inc., whose rail carrier subsidiaries comprise North America’s largest regional railroad. The financial terms of the transaction were not disclosed.
  • Canadian Pacific Railway Ltd.: Canadian Pacific Railway is a Canada-based company that offers rail transportation services, including intermodal shipping, rail siding construction, and logistics services. The company announced in mid-October that it is acquiring full ownership of the Detroit River Rail Tunnel at a purchase price of approximately $312 million. Canadian Pacific’s previous ownership stake in the tunnel was 16.5%. The transaction is expected to close by the end of the current year.

Railroad Stocks With the Most Profit Growth or Least Profit Decline

These are the railroad stocks with the highest year-over-year (YOY) earnings per share (EPS) growth or lowest EPS decline for the most recent quarter. A company’s ability to maintain profitability in a difficult business environment can be a sign of good management and/or a strong business model.

Railroad Stocks With the Most Profit Growth or Least Profit Decline

 

Price ($) Market Cap ($B) EPS Growth (%)
Westinghouse Air Brake Technologies Corp. (WAB) 76.51 14.6 39.6
Kansas City Southern (KSU) 195.49 18.3 11.1
Canadian Pacific Railway Ltd. (CP) 336.58 45.3 -2.0

Source: YCharts

  • Westinghouse Air Brake Technologies Corp.: Westinghouse Air Brake Technologies, or Wabtec, provides technology-based equipment and services for the global freight and transit rail industries. Net income grew 41.8% despite a 6.8% decline in net sales in Q3 2020, which ended September 30, 2020. Net income was boosted by lower cost of sales and operating expenses compared to the year-ago quarter. Wabtec said that its freight and transit segments were negatively affected by disruptions related to the COVID-19 pandemic.
  • Kansas City Southern: Kansas City Southern is a holding company that, through its subsidiaries, operates a railroad system providing shippers with freight services in commercial and industrial markets in the U.S. and Mexico. The company posted net income growth of 5.3% despite an 11.8% decline in revenue in Q3 2020, which ended September 30, 2020. Operating expenses and income tax expenses fell at a faster rate than revenue, helping to boost net income. Kansas City Southern said that the drop in revenue and freight volumes was driven by several factors related to the COVID-19 pandemic, including lower commodity prices, lower fuel surcharge, and unfavorable foreign currency impacts.
  • Canadian Pacific Railway Ltd.: See above for company description.

Railroad Stocks with the Most Momentum

These are the railroad stocks that had the highest total return over the last 12 months.

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  1. YCharts. “Financial Data.” Accessed Dec. 9, 2020.

  2. CSX Corp. “CSX to Acquire Pan Am Railways in New England.” Accessed Dec. 9, 2020.

  3. Canadian Pacific Railway Ltd. “CP TO ACQUIRE FULL OWNERSHIP OF THE DETROIT RIVER RAIL TUNNEL.” Accessed Dec. 9, 2020,

  4. Westinghouse Air Brake Technologies Corp. “Wabtec Reports Third Quarter 2020 Results; Updates 2020 Guidance,” Pages 1-4. Accessed Dec. 9, 2020.

  5. Kansas City Southern. “Kansas City Southern Reports Third Quarter Results.” Accessed Dec. 9, 2020.

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