Often overlooked yet extremely critical for America's economy, railroads transport almost 30% of the country's freight. So when holiday shopping sees a robust season, the railway industry stands to benefit, along with retail.
But this holiday season, the railway industry faces a new challenge: a potential industrywide strike. A rail-worker strike, which could occur as soon as November 19, could mean empty shelves for holiday shopping, fuel shortages, spoiled crops, and a restrained supply of new cars for sale.
However, if a strike is avoided, it could mean a catalyst and bullish indicator for the entire industry. With that in mind, let's take a look at three American railroad stocks and how each is positioned for the future.
1. Union Pacific
Union Pacific (UNP 0.77%) has outperformed the S&P 500 for more than 15 years and reached an all-time high just shy of $280 this past March. However, the stock has fallen 29% in the past six months, and investors want to know if this dip is worth buying.
Although Union Pacific just posted record Q3 earnings, the railway operator actually lowered its full-year guidance for growth, indicating a slowing economy and insufficient crews. Volume was up in the third quarter, but staffing shortages left a substantial amount of business on the table for Union Pacific. With hiring and training initiatives in full effect, the railroad has hired more than 1,400 new train operators and engineers and should see a positive result as new workers are onboarded.
NYSE: UNP
Key Data Points
Despite staffing issues, Union Pacific's volumes have outpaced competitors in 2022, and current sales trends indicate rises in coal, auto, and construction-material shipments. As for union negotiations, CEO Lance Fritz remains confident that a strike can be avoided.
2. CSX
One of the largest railroads in the U.S., CSX (CSX +0.24%) expects a solid end to the year after posting 18% year-over-year revenue growth for Q3. CSX stock also posted new all-time highs in March but has since observed a roughly 22% decline.
Similar to Union Pacific, CSX has struggled with crew shortages in recent months. In Q3, on-time departures dropped by 13%, compared to last year, while on-time arrivals fell by 16%. However, despite staffing issues, CSX performed well in the third quarter, seeing an 18% revenue increase and a 15% profit boost year over year.
The railway's new CEO Joseph Hinrichs began working with CSX in September. Previously President of Ford Motor Company's automotive division, Hinrichs' plan for the railroad involve improving existing operations from the ground up.
NASDAQ: CSX
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In an attempt to warm relations, Hinrichs met with union leaders in his first weeks on the job. The new CEO remains hopeful that ultimately all 12 unions will ratify their contracts, which he considers "historic wins for the unions." Hinrichs aims to improve relations between laborers and company management.
3. Norfolk Southern
The most extensive rail network in the Eastern U.S., freight carrier Norfolk Southern (NSC 0.66%) just enjoyed a banner Q3, posting new quarterly records for sales, profit, and earnings per share. Posting all-time highs near $300 last December, Norfolk Southern stock now trades at a price roughly 23% below that.
Q3 revenue of $3.3 billion marked a new company record and a year-over-year increase of 17%. However, the more impressive number came in the profit department, where Norfolk Southern posted 27% higher net income than the same period last year.
Since freight volumes were actually down in Q3, Norfolk's exceptional performance was the result of replenished crews and increased efficiency, combined with service improvements and a modern locomotive fleet. Profit margin rose by over 2%, compared to Q3 of 2021.
Like the other railroads, Norfolk Southern has struggled to retain train crews, and saw volumes drop in Q3, as a result. However, the leading transporter of coal, automobiles, and automotive parts just reached its hiring goal ahead of schedule and has 950 new conductors currently in training.
Undeterred by signs of a slowing economy, CEO Alan Shaw feels that continued improvements will drive long-term growth for Norfolk Southern.
NYSE: NSC
Key Data Points
Industry growth and sustainability
With the global railroad industry anticipated to grow 4.4% annually through the end of the decade, all three of these American rail carriers should provide some upside to investors in it for the long haul. And news that a union deal is finalized could be received quite enthusiastically by the markets. However, investors should also realize that a rail-industry strike could mean another near-term pullback.
Railway remains the most environmentally friendly method of transporting metals, chemicals, coal, construction materials, and many other goods that keep America running. In fact, buying railroad stocks can be considered a form of sustainable investing.
