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3 Railroad Stocks to Watch as Industry Continues to Recover

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When coronavirus gripped the United States last year, economic activities took a hit, which in turn, affected the railroad industry. However, following the gradual easing of restrictions, railroads began to stage a comeback and are continuing their recovery. Per a report by the Association of American Railroads published on Sep 15, for the first 36 weeks of 2021, the total combined U.S. rail traffic increased 10% from last year.

The report further stated that for the first 36 weeks of 2021, the cumulative volume of U.S. railroads rose 8.2% year over year while intermodal volumes increased 11.5% from last year. In fact, total North American rail volume, including carloads and intermodal units, increased 8.9% during the first 36 weeks of this year.

Per another report by the Bureau of Transportation Statistics, North American transborder freight via railways in June 2021, increased 45.5% year over year. It’s also interesting to note that this marked an increase of 3.4% from the pre-pandemic levels witnessed in June 2019.

The widespread availability of the COVID-19 vaccines has been instrumental in fueling the recovery in the U.S. railroad industry. In recent times, however, the spread of the highly contagious Delta variant has sparked concerns about a potential slowdown in economic recovery.

But recent data can be regarded as a silver lining with the Centers for Disease Control and Prevention (“CDC”) reporting on Sep 10 that the current seven-day moving average of daily new coronavirus cases declined 12.7% from the previous seven-day moving average. Another positive is that 54.1% of the total U.S. population has been fully vaccinated, per the latest report by the CDC as of Sep 15.

Such positive developments should continue to fuel the recovery in railroads. Besides, President Joe Biden’s proposed infrastructure plan will also look to overhaul the railway infrastructure in the country. The bill consists of $66 billion spending for passenger and freight rail, as mentioned in a CNN Business article. Reflective of these positives, IBISWorld expects the U.S. rail transportation market to grow 9.8% this year.

3 Stocks to Watch

The U.S. railroad industry seems ready to continue on its recovery path, fuelled by a steady vaccination drive as well as the proposed spending to improve the railway infrastructure in the country. This seems then an opportune moment to take a look at railroad stocks that stand to benefit from this potential. We have selected three such stocks that carry a Zacks Rank #2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Union Pacific Corporation (UNP - Free Report) , through its subsidiary, Union Pacific Railroad Company, engages in the railroad business in the United States.

Shares of Zacks Rank #2 Union Pacific have risen 19.1% over the past two years. The Zacks Consensus Estimate for its current-year earnings increased 2.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 22.3%.

Norfolk Southern Corporation (NSC - Free Report) , together with its subsidiaries, engages in the rail transportation of raw materials, intermediate products, and finished goods in the United States. On Aug 13, the company announced the reopening of its intermodal facility in Greencastle, Pennsylvania, beginning Sep 10, fueled by robust growth in volume driven by e-commerce and economic recovery.

Shares of Norfolk Southern have risen 4.6% year to date and it currently has a Zacks Rank #3. The Zacks Consensus Estimate for its current-year earnings increased 3.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 28.8%.

CSX Corporation (CSX - Free Report) , together with its subsidiaries, provides rail-based freight transportation services. The company offers rail services; and transportation of intermodal containers and trailers, and other transportation services.

Shares of CSX have risen 2% year to date. The Zacks Consensus Estimate for its current-year earnings increased 4.1% over the past 60 days. This Zacks Rank #3 company’s expected earnings growth rate for the current year is 23.8%.


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