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3 Railroad Stocks to Watch From the Prospering Industry

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The Zacks Transportation - Railindustry faces challenges, ranging from tariff-induced economic uncertainties, inflationary pressures and resultant high interest rates to concerns pertaining to supply-chain disruptions.

Despite the challenges surrounding the industry, Union Pacific Corporation (UNP - Free Report) , Canadian Pacific Kansas City Limited (CP - Free Report) and CSX Corporation (CSX - Free Report) appear better placed to tide over the challenges. Declining fuel costs represent a tailwind as far as bottom-line growth is concerned.


Industry Description

The Zacks Transportation - Rail industry includes railroad operators transporting freight (such as agricultural products, industrial products, coal, intermodal, automotive, consumer products, metals and minerals), primarily across North America. These companies focus on providing logistics and supply-chain expertise services. While freight constitutes a significant chunk of revenues, some of these companies also derive a small portion of their top line from other rail-related services, including third-party railcar and locomotive repairs, routine land sales and container sales, among others. A few companies offer service to multiple production and distribution facilities. Besides locomotives, some of these companies own equipment of leased locomotives, railcars etc.

Factors Deciding the Industry's Outlook

Strong Financial Returns for Shareholders:With economic activities gaining pace from the pandemic lows, more and more companies are allocating their increasing cash pile through dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and confidence in the business. Among the Transportation – Railroad industry players, CSX announced an 8.3% increase in the quarterly dividend in February 2025.

Decline in Oil Priceis a Tailwind: The decline in fuel expenses represents another tailwind for the industry. Notably, oil prices declined almost 11.2% from the beginning of 2025 to date. As fuel expenses represent a key input cost for any transportation player, a fall in oil prices bodes well for the bottom-line growth of railroad stocks.

Economic Uncertainty Remains: The potential effects of newly implemented tariffs, still high inflation and the prevalent rate cut-related uncertainty imply that market volatility is unlikely to dissipate soon. With inflation remaining a foe, risks associated with an economic slowdown and geopolitical tensions dampen the prospects of stocks belonging to this industrial cohort. Sluggish economic growth and inflationary woes are likely to make markets more volatile in the coming days. Rising economic uncertainty does not bode well for industry players. These do not bode well for the industry participants. Also, the imposition of tariffs is anticipated to lead to higher costs for the industry.

Zacks Industry Rank Indicates Encouraging Prospects

The Zacks Transportation Railroad industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #102. This rank places it in the top 41% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that investors can retain, given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.

Industry Lags S&P 500, Outperforms Sector

The Zacks Transportation - Rail industry has underperformed the Zacks S&P 500 composite index while outperforming the broader sector over the past year.

Over this period, the industry has declined 5.3% compared with the S&P 500 Index’s northward movement of 15.9%. The broader sector has declined 7%.

One-Year Price Performance

Industry's Current Valuation

Based on the trailing 12-month price-to-book (P/B), a commonly used multiple for valuing railroad stocks, the industry is currently trading at 6.01X compared with the S&P 500’s 8.40X. It is above the sector’s P/B ratio of 3.50X.

Over the past five years, the industry has traded as high as 10.92X, as low as 5.28X and at the median of 7.19X.

3 Stocks to Keep an Eye On

We are presenting three Zacks Rank #3 (Hold) stocks that are well-positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Union Pacific: Headquartered in Omaha, NE, Union Pacific, through its subsidiary, Union Pacific Railroad Company, operates in the railroad business in the United States.

Relatively stable ecommerce demand, cost-cutting efforts to boost the bottom line and consistent initiatives to reward its shareholders through dividend payments and share repurchases bode well for UNP’s prospects. Further, UNP has a stellar track record with respect to earnings surprises. The company surpassed the Zacks Consensus Estimate in two of the past four quarters (missed the mark in the remaining two quarters), with an average beat of 2.02%.

Price and Consensus: UNP

Canadian Pacific: Headquartered in Calgary, Canada, Canadian Pacific manages a transcontinental freight railway in Canada, the United States and Mexico.

We are encouraged by the Canadian Pacific’s decision to pay dividends consistently. Such a move instills investors’ confidence and positively impacts the company’s bottom line. Canadian Pacific has an encouraging track record with respect to earnings surprise. The company's earnings missed the Zacks Consensus Estimate in two of the past four quarters (met the mark in one quarter and surpassed the mark in the remaining quarter), delivering an average surprise of 0.80%.

Price and Consensus: CP

CSX: Based in Jacksonville, FL, CSX offers rail-based freight transportation services like traditional rail service, transport of intermodal containers and trailers apart from rail-to-truck transfers.

For 2025, CSX still expects total volume growth. For the second half of 2025, CSX now expects lesser year-over-year revenue headwinds from lower export coal benchmarks and diesel prices.
CSX will continue to focus on operational excellence, labor productivity, and efficiency initiatives. The company's focus on improving workplace safety for employees is commendable. CSX’s strong balance sheet enables the company to reward shareholders with dividends and share repurchases. CSX has surpassed the Zacks Consensus Estimate in one of the past four quarters.

Price and Consensus: CSX



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