The railroad industry is on the cusp of substantial growth as the world clamors for streamlined transportation, propelled by tech leaps and governmental backing. Hence, railroad trail blazers East Japan Railway Company (EJPRY), Westinghouse Air Brake Technologies Corporation (WAB) and L.B. Foster Company (FSTR), asserting dominance over competitors, could make ideal buys right now.
Let us understand this in detail.
Rising incomes and burgeoning populations in emerging economies are driving robust demand for efficient, swift, and eco-friendly transportation. The exponential growth of cities has amplified this need, particularly fostering a surge in commuter preference for daily travel via high-speed bullet and metro trains, auguring prosperity for the rail industry.
The burgeoning tourism sector, coupled with affordable passenger train fares, is propelling expansion in the passenger rail segment. Additionally, heightened investments in expanding commuter rail networks are poised to fuel business growth in the foreseeable future.
The sector is also being propelled by advancements such as drones and smart sensors for railway track inspection, digital communication platforms, and automatic train control (ATC). Rail tech startups are scaling innovative solutions, integrating biometric data, Artificial Intelligence (AI), and cloud computing for enhanced efficiency.
Also, the industry stands to benefit from IoT devices, enabling predictive maintenance for proactive anomaly detection. This, combined with condition-based monitoring, is augmented by progressive trends like rolling stock hybridization and high-speed rail, fostering a robust and future-oriented technological landscape for railway operations.
According to a report by Expert Market Research, the global railroads market is supported by the growth of the global rail transport market, which is expected to grow at a CAGR of 3% and reach $268.41 billion by 2032.
Additionally, government support is also fostering a growth environment in the railroad sector. For instance, the Federal Railroad Administration (FRA) of the U.S. Department of Transportation (USDOT) revealed an unprecedented investment exceeding $1.4 billion from President Biden's Bipartisan Infrastructure Law.
Allocated to 70 rail improvement projects across 35 states and Washington, D.C., this infusion represents the largest-ever award under the Consolidated Rail Infrastructure and Safety Improvements (CRISI) program.
This substantial financial commitment is poised to significantly benefit the rail industry by fostering enhanced safety measures and upgrading the rail supply chain, thereby fortifying and modernizing rail infrastructure nationwide.
In light of these encouraging trends, let us dive into the fundamentals of these three best Railroads stocks, starting with the third choice.
Stock #3: East Japan Railway Company (EJPRY)
EJPRY, headquartered in Tokyo, Japan, offers a broad spectrum of services, including passenger railway, freight, bus transportation, travel agency, warehousing, financial, telecommunication, computer-related data, and more. The company's segments include Transportation; Retail & Services; Real Estate & Hotels; and Others.
The stock's trailing-12-month gross profit margin of 33.34% is 9.3% higher than the industry average of 30.49%. Its trailing-12-month EBITDA margin of 25.70% is 87% higher than the 13.74% industry average. Also, EJPRY's trailing-12-month net income margin of 7.30% compares to the 6.05% industry average.
For the six months that ended September 30, 2023, EJPRY's operating revenues increased 16.6% year-over-year to ¥1.30 trillion ($8.70 billion). Its income before income taxes is 330.1% from the year-ago value to ¥164.74 billion ($1.10 billion). Also, the company's profit rose 328.6% from the prior year's quarter to ¥117.65 billion ($787.65 million).
In addition, as of September 30, 2023, the company's cash and time deposits amounted to ¥403 billion ($2.69 billion), compared to ¥215.19 billion ($1.44 billion) as of March 31, 2023.
The consensus revenue estimate of $4.51 billion for the fiscal 2024 third quarter ending December 2023 reflects a 32.3% year-over-year improvement. Likewise, the consensus revenue estimate of $4.70 billion for the fiscal 2024 fourth quarter ending March 2024 exhibits a 25.5% rise from the prior year's period. Moreover, the company surpassed the consensus revenue estimates in three of the four trailing quarters.
Shares of EJPRY have gained 7.1% over the past month to close the last trading session at $9.02.
EJPRY's sound fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
EJPRY has an A grade for Growth and a B for Stability and Quality. It has ranked #3 out of 15 stocks within the B-rated Railroads industry.
In addition to the POWR Ratings I've just highlighted, you can see EJPRY's Value, Momentum, and Sentiment ratings here.
Stock #2: Westinghouse Air Brake Technologies Corporation (WAB)
WAB delivers technology-based locomotives, equipment, systems, and services to the freight rail and passenger transit industries. The company operates in two segments: Freight and Transit. Additionally, it provides services such as overhauling, modernizing, and refurbishing freight locomotives.
WAB's trailing-12-month EBITDA margin of 18.12% is 31.9% higher than the industry average of 13.74%. The stock's trailing-12-month net income margin of 8.02% is 32.5% higher than the 6.05% industry average. Furthermore, its trailing 12-month cash from operations of $925 million compares to the industry average of $280.10 million.
For the fiscal third quarter that ended September 30, 2023, WAB's net sales increased 22.5% year-over-year to $2.55 billion. Its adjusted gross profit grew 23.3% from the year-ago value to $805 million. Also, the company's adjusted net income and EPS rose 36.4% and 39.3% from the prior year's period to $307 million and $1.70, respectively.
Analysts expect WAB's revenue to increase 7.3% year-over-year to $2.47 billion for the fiscal fourth quarter ending December 2023. The company's EPS for the current quarter is expected to rise 20.5% from the prior year's period to $1.57. Also, the company surpassed the consensus revenue and EPS estimates in all four trailing quarters.
The stock has gained 15.8% over the past month to close the last trading session at $116.31.
WAB's robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
WAB has an A grade for Growth and a B for Sentiment and Quality. It is ranked #2 out of 15 stocks within the same industry.
Click here to access the additional WAB ratings (Value, Momentum and Stability).
Stock #1: L.B. Foster Company (FSTR)
FSTR provides technologically advanced solutions, encompassing the engineering and manufacture of products and services vital for infrastructure development. The company operates through three segments: Rail, Technologies, and Services (Rail); Precast Concrete Products (Precast); and Steel Products and Measurement.
The stock's trailing-12-month levered FCF margin of 6.77% is 11.7% higher than the industry average of 6.07%. In addition, its trailing-12-month asset turnover ratio of 1.46x compares to the 0.80x industry average.
FSTR's total net sales rose 11.8% year-over-year to $145.35 million for the fiscal third quarter that ended September 30, 2023. Its adjusted EBITDA grew 14.2% from the year-ago value to $10.59 million.
Furthermore, the company's net income and earnings per common share came in at $447 thousand and $0.05, compared to a net loss and loss per share of $2.11 million and $0.20, respectively.
Analysts expect FSTR's revenue to increase 7.6% year-over-year to $535.26 million for the fiscal year ending December 2023. Similarly, the company's revenue for the next fiscal year ending December 2024 is expected to be $573.34 million, up 7.1% from the previous year. Moreover, the company surpassed the consensus revenue estimates in all four trailing quarters.
FSTR has gained 57.1% over the past six months and 103.7% year-to-date, closing the last trading session at $19.95.
FSTR's strong outlook is apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
FSTR has a B grade for Growth and Quality. It has topped the 15-stock Railroads industry.
Click here to access additional FSTR ratings for Value, Momentum, Stability, and Sentiment.
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WAB shares were trading at $117.00 per share on Friday morning, up $0.69 (+0.59%). Year-to-date, WAB has gained 17.98%, versus a 20.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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