The stage is set for the World Series, but the investing world is watching its own baseball game, where only the railroad companies seem able to hit off this new star pitcher with the creepy name: global economic downturn. With runners on second and third, and no outs in the inning, could this turn into a grand slam quarter for the major railroad stocks?
Following a lead-off single by competitor CSX
Norfolk has enjoyed expanding pricing power in each of the first three quarters of 2008, reaching a 24% year-over-year improvement for the latest quarter. Not surprisingly, the red-hot coal sector accounted for a substantial portion of that improvement, as the company generated 43% more revenue per carload of coal than it did in Q3 2007. Following a 50% correction in the price of oil, I wouldn't be surprised to see pricing power for the railroads stabilizing or diminishing a bit as trucking for some freight categories becomes a cost-effective option once more. Coal, however, is rail freight by default, and I see its export market thriving for some time.
Mirroring CSX, coal now accounts for 30% of Norfolk's operating revenue. In case last week's jaw-dropping 1,000% earnings increase posted by Peabody Energy
In the meantime, we have two more rail companies reporting later this week: Burlington Northern Santa Fe
Nearly 800 Motley Fool CAPS members, including 204 All-Stars, expect Norfolk Southern to outperform the S&P 500. In all, the CAPS community has shared its collective insight on 21 rail companies. Join the free CAPS community today and share your views on how the rail industry will fare through the current financial crisis.
Fool contributor Christopher Barker thinks that a World Series without the Boston Red Sox is like a bun without the hot dog. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Peabody Energy. The Motley Fool has a major-league disclosure policy.