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Genesee & Wyoming (GWR) Stock Up 4% in 6 Months: Here's Why

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Despite high operating expenses, shares of Genesee & Wyoming Inc. (GWR - Free Report) have fared well in the past six months. The stock has gained 3.8% compared with the industry’s rise of 1.6%.

Reasons for Impressive Price Performance

In October, Genesee & Wyoming reported impressive third-quarter 2018 results. Earnings per share (EPS) came in at $1.23, which surpassed the Zacks Consensus Estimate by 8 cents and surged 51.9% year over year. Results were aided by higher freight revenues and lower effective tax rate. Operating revenues of $603.3 million outpaced the consensus mark of $594.5 million.  Also, the top line improved 4.6% on a year-over-year basis.

The Darien, CT-based railroad posted higher traffic volumes for October. Genesee & Wyoming’s total traffic in the month increased 3.9% to 286,180 carloads. The railroad’s same railroad traffic (excluding carloads from the Continental European intermodal business sold in June 2018) climbed 7.1%. While traffic at the North American and Australian operations increased 8.1% and 15.1%, respectively, the same declined 7% at the U.K./European business.

Furthermore, the current tax law (Tax Cuts and Jobs Act) is an added positive for the company as it has reduced the effective tax rate, which has boosted the bottom line.  Effective tax rate declined to 30% in the third quarter of 2018 from 36.2% a year ago due to the new tax law.

We are also optimistic about the company’s growth-by-acquisition policy. The measure has boosted the top line by expanding the product portfolio, significantly. Moreover, the company‘s efforts to reward shareholders are impressive. Recently, the board of directors has approved a new buyback plan worth $500 million. This follows the completion (in October 2018) of the previously-authorized share repurchase plan valued at $300 million. Strong free cash flow generation is a huge positive.

Additionally, Genesee & Wyoming does not have a highly leveraged balance sheet, reflected from the fact that the company's debt-to-equity ratio (expressed as a percentage) is currently 60.8. The industry's comparable reading is 85.7. In terms of price-to-book ratio, which is often used to evaluate railroad companies, the stock appears to be attractive. Currently, the company has a trailing 12-month P/B ratio of 1.3 compared with the industry's 4.8. The company also has a Value Score of B, which reflects attractive valuation.

Zacks Rank & Key Picks

Genesee & Wyoming carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the Zacks Transportation sector are Norfolk Southern Corporation (NSC - Free Report) , Matson, Inc. (MATX - Free Report) and Frontline Ltd. (FRO - Free Report) . While Norfolk Southern and Matson carry a Zacks Rank #2 (Buy), Frontline sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Norfolk Southern, Matson and Frontline have gained 8.4%, 12.5% and 41.8% in the past six months, respectively.

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