The railroad market is growing as governments and private sectors invest in infrastructure development and upgrades. Sustainability efforts, including eco-friendly technologies and digital innovations like IoT and big data, enhance efficiency and reduce carbon footprints.
Given the industry’s tailwinds, investors could consider looking into fundamentally sound rail stocks, GATX Corporation (GATX), FreightCar America, Inc. (RAIL), and L.B. Foster Company (FSTR), which keeps the economy moving.
The railroad market growth is increasing due to infrastructure development, where governments and private entities are committing significant resources toward expanding and upgrading rail lines. The market is expected to grow at a CAGR of 3.5% by 2033.
Another emerging trend is the growing emphasis on sustainability, as railroads implement environmentally friendly technologies like electrification and hybrid locomotives to lower carbon emissions. Adopting digital technologies, such as the Internet of Things (IoT) and big data analytics, improves operational efficiency and enables predictive maintenance.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Railroads stocks, starting with #3.
Stock #3: GATX Corporation (GATX)
GATX operates as a railcar leasing company in the United States, Canada, Mexico, Europe, and India. It operates through three segments: Rail North America; Rail International; and Engine Leasing. The company leases tank and freight railcars, and locomotives for petroleum, chemical, food/agriculture, and transportation industries.
GATX’s trailing-12-month EBIT and gross profit margins of 30.13% and 73.79% are 192.1% and 134.1% higher than the respective industry averages of 10.31% and 31.52%.
GATX’s total revenues for the fourth quarter that ended December 31, 2024, were reported at $413.50 million. Its net income came in at $76.50 million, up 15.9% from the year-ago quarter. The company reported EPS of $2.10, up 16% from the prior-year quarter.
Analysts expect GATX’s revenue for the fiscal first quarter ending March 2025 to increase 9.8% year-over-year to $417.25 million. For the same quarter, Street expects its EPS to increase 3.8% year-over-year to $2.09. The company surpassed its revenue estimates in each of the trailing four quarters, which is promising.
GATX’s stock has soared 6.2% year-to-date to close the last trading session at $164.53.
GATX’s POWR Ratings reflect its outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Stability. It is ranked #13 in the 16-stock Railroads industry.
Beyond what is stated above, we’ve also rated GATX for Value, Momentum, Growth, Quality, and Sentiment. Get all GATX ratings here.
Stock #2: FreightCar America, Inc. (RAIL)
RAIL engages in the design, manufacture, and sale of railcars and railcar components for the transportation of bulk commodities and containerized freight products in the United States and Mexico. It operates in two segments: Manufacturing and Parts.
RAIL’s trailing-12-month levered FCF margin of 9.67% is 35.5% higher than the industry average of 7.14%. Its trailing-12-month ROTC of 41.11% is 485.8% higher than the industry average of 7.02%.
During the third quarter that ended September 30, 2024, RAIL’s revenues increased 83% year-over-year to $113.26 million, and its gross profit grew 75.6% year-over-year to $16.20 million. Furthermore, the company’s non-GAAP net income and earnings per share came in at $7.28 million and $0.08, respectively.
Street expects RAIL’s revenue for the fourth quarter (ended December 2024) to increase 20.1% year-over-year to $152.02 million, and its EPS is expected to be $0.05, respectively. Moreover, the company topped the consensus EPS estimates in three of the four trailing quarters, which is impressive.
RAIL’s stock has increased 114.3% over the past nine months to close the last trading session at $7.78.
RAIL’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
RAIL has an A grade for Growth and a B for Sentiment. It is ranked #2 in the same industry.
In addition to the POWR Ratings highlighted above, one can access RAIL’s ratings for Momentum, Stability, Value, and Quality here.
Stock #1: L.B. Foster Company (FSTR)
FSTR provides engineered and manufactured products and services for building and infrastructure projects in the United States, Canada, the United Kingdom, and internationally. It operates through two segments: Rail, Technologies, and Services; and Infrastructure Solutions.
FSTR’s trailing-12-month net income margin of 7.96% is 25.4% higher than the industry average of 6.35%. Its trailing-12-month ROCE of 26.42% is 102.8% higher than the industry average of 13.03%.
During the third quarter that ended September 30, 2024, FSTR’s net sales were reported at $137.47 million, and its gross profit increased 19.5% year-over-year to $32.76 million. Furthermore, the company’s net income and earnings per common share increased significantly year-over-year to $35.90 million and $3,27, respectively.
Street expects FSTR’s revenue and EPS for the fourth quarter (ended December 2024) to be $130.80 million and $0.12, respectively.
FSTR’s stock has gained 38.5% over the past six months to close the last trading session at $26.59.
FSTR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
FSTR has a B grade for Value, Quality, Growth, and Sentiment. It is ranked first in the same industry.
Click here to access the additional FSTR ratings (Momentum and Stability).
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GATX shares were trading at $165.66 per share on Friday afternoon, up $1.74 (+1.06%). Year-to-date, GATX has gained 6.91%, versus a 0.21% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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