Burlington Northern Santa Fe (NYSE:BNI) isn't merely going along for the ride. The country's largest railroad continues to improve internal efficiency and reap the benefits of strong demand for rail transport.

Freight revenue grew 15% in the quarter as the company managed to squeeze out 3% growth in revenue ton-miles as well as nearly 11% higher revenue per unit. I know that 3% volume growth doesn't sound like a lot, but this railroad has seen volume growth for more than three years, and it's difficult to substantially expand volume without spending a lot of money.

Burlington Northern saw strength across the board in terms of cargo categories. Consumer product revenue grew 19% on 9% volume growth, and the automotive business was very strong in the quarter. While the auto industry as a whole isn't doing so well, this railroad benefited from the opening of a new Honda (NYSE:HMC) plant that's using its rails for shipment.

As I said, there was strength across the board. Industrial and agricultural product revenue both increased by 16% and coal revenue increased 7% despite the problems in the Powder River Basin. Intermodal, part of the consumer segment, was also extremely strong -- growing more than 18% for the quarter and making up nearly one-third of the company's total revenue.

Burlington Northern also made greater strides with its own internal efficiency. The operating ratio improved by four points to 76.7%, and this in turn led to a 40% increase in operating income. With strong year-to-date free cash flow (more than double the year-ago level), the company raised its dividend by 18%.

At this point, it looks like full steam ahead for the railroad business. While some industrial product volume may slacken, overall demand for rail transport and intermodal services is quite strong. Looking specifically at Burlington Northern (and to a lesser extent UnionPacific (NYSE:UNP)), it will be important to get this Powder River Basin issue resolved promptly. The market for coal is tight enough as it is, and no one wants to see utilities run short of coal during the summer air conditioning season just because of rail problems.

Befitting the strong market for rails and the strong performance of Burlington Northern, this stock is within 10% of its high and up nearly 50% over the past year. I like this business, but I just can't work a valuation model to make the shares seem undervalued. If I owned these shares I certainly wouldn't sell them now, though I might consider putting in a stop loss and/or writing some covered calls. For new investors, though, I think there are better values elsewhere.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).