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How Major US Railroad Stocks Performed in 3Q16

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The major US railroad stocks

Earnings season for major US railroads starts with major Eastern US operator CSX (CSX) and ends with the short-line target hunter rail carrier Genesee & Wyoming (GWR). Since the volume of freight hauled by railroads is an indicator of economic health, investors should have some insight into the railroads’ performance in the third quarter of 2016.

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Stock price movement

The early 2016 signs of commodity prices gearing upwards have cooled down. As you can see in the above graph, the rail stocks’ price momentum has gradually slowed down since 2Q16. The exception was GWR, which recently announced the acquisition of internal rail haulage operator Glencore in the Hunter Valley coal region in Australia for $866.0 million. The US’s largest short line operator also acquired Providence and Worcester Railroad for $126.0 million in August 2016.

After Donald Trump’s victory, US-Mexico railroad Kansas City Southern (KSU) started quivering. Banking on the huge investment in intermodal terminals, CSX’s stock has been rallying for quite some time. Norfolk Southern (NSC), another Eastern US behemoth, has consistently delivered in the last two quarters in accordance with its Plan 2020 to reduce operating costs and improve margins. The plan has resulted in some traction in NSC’s stock price since 3Q16 results.

However, Western US giant Union Pacific (UNP) and prominent Canadian railroads Canadian National (CNI) and Canadian Pacific (CP) have been range-bound since 2Q16 results.

The Industrial Select Sector SPDR Fund (XLI) has returned 15.6% since the beginning of 2016. Major US railroads and airlines make up 4.2% and 7.2% of XLI’s holdings, respectively.

Series overview          

In this series, we’ll go through the prominent US railroads’ revenue and margin changes. Plus, we’ll also look carefully at the business verticals that all the railroads have in common.

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