CHICAGO, Feb. 6, 2012 /PRNewswire/ --Today, Zacks Equity Research discusses the Railroads, including Union Pacific Corp. (NYSE: UNP), Kansas CitySouthern (NYSE: KSU), CSX Corp. (NYSE: CSX), Norfolk Southern Corp. (NYSE: NSC) and Canadian National Railway Co. (NYSE: CNI).
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A synopsis of today's Industry Outlook is presented below. The full article can be read at
http://www.zacks.com/stock/news/69095/Railroad+Industry+Stock+Outlook+-+Feb.+2012
The U.S. Freight Railroads performed exceptionally well in 2011 despite difficult weather conditions and an extremely volatile U.S. economy. Solid commodities volumes, effective cost management, and improved rail efficiency helped U.S railroads to continue their strong performance.
The railroads are gaining momentum over the trucking industry due to significant rise in fuel costs of truckers. Currently, the railroads are carrying more cargos, which is helping them gain market share.
During fiscal 2011, the railroads benefited from strong pricing gain reflecting both solid yield improvement and higher fuel surcharges. Shipments of construction components, lumber and motor vehicle volumes increased over 30% year over year. Petroleum product shipment rose 29% year over year.
Importantly, industry players are now more confident that this excellent performance will get further momentum during fiscal 2012. In the first half of January 2012, total rail carloads increased 5.5% year over year, of which intermodal volume rose 7.4%.
The railroad industry as a whole offers a number of attributes that are difficult to ignore from the standpoint of investors.
Discretionary Pricing Power:The freight railroad operators function in a seller's market enjoying pricing power since 1980 when the U.S. government adopted the Staggers Rail Act. The idea was to allow rail transporters to hike price on captive shippers like electric utilities, chemical and agricultural companies in order to improve profitability of the struggling railroad industry. As a result of the Staggers Rail Act, the railroads are hiking their freight rates on an average by nearly 5% per annum while maintaining a double digit profit margin.
Competitive Advantage: From the customers' point of view, rail transport is cheaper and fuel-efficient than truck and ship transport. As a result, railroads are gaining market share from other means of transport. Several truck operators went bankrupt during the peak recessionary period that helped railroads to become default freight transporters for mid-to-long distances.
Technical Superiority:Overall, investment by railroad operators for product and service improvement is far ahead than other transportation industries. Investments in capacity, innovations and use of several state-of-the-art technologies have led to service improvements and enhanced reliability. AAR claims that freight rail transporters together invested a significant amount of $44 billion in the previous two years for railroad track expansion and maintenance.
Currently, we remain Neutral on Union Pacific Corp. (NYSE: UNP), Kansas CitySouthern (NYSE: KSU), CSX Corp. (NYSE: CSX), Norfolk Southern Corp. (NYSE: NSC) and Canadian National Railway Co. (NYSE: CNI). However, due to strong growth momentum of the industry, our long-term view remains positive for all these Class 1 freight railroad operators.
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