Given present trends, passenger and freight activity will more than double by 2050. As the industry shows solid potential, fundamentally strong railroad stocks Westinghouse Air Brake Technologies Corporation (WAB), West Japan Railway Company (WJRYY), and L.B. Foster Company (FSTR) might be solid buys.
Due to the globalization-induced industrial revolution, the rising number of local and cross-border movements of travelers and commodities is facilitating market growth. Apart from this, the increasing adoption of railroads for transporting bulk commodities to remote areas, owing to their robust connectivity, is acting as another growth-inducing factor.
IMARC Group expects the market to reach $503.3 billion by 2028, exhibiting a CAGR of 4.1% until 2028.
Furthermore, increased investments in extending the commuter rail network will likely drive business growth in the coming years. In recent years, there has been an increase in interest in traveling by bullet and metro trains for daily commuting. As a result, increased investments have been made to construct new lines and expand the number of trains running.
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% until 2028 to reach a value of approximately $253 billion by 2026.
Let’s discuss the stocks mentioned above in detail:
Westinghouse Air Brake Technologies Corporation (WAB)
WAB provides technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries worldwide. The company operates in two segments, Freight and Transit.
On May 7, 2023, WAB declared a regular quarterly common dividend of 17 cents per share, payable on June 9, 2023.
WAB pays a $0.68 per share dividend annually, which translates to a 0.70% yield on the current price. Its dividend payments have grown at a CAGR of 8.9% and 6.2% over the past three and five years. The company has a four-year average dividend yield of 0.60%.
Its trailing-12-month EBITDA margin of 17.79% is 34.5% higher than the 13.23% industry average. Its trailing-12-month gross profit margin of 30.73% is 3% higher than the 29.85% industry average.
During the fiscal first quarter ended March 31, 2023, WAB’s net sales increased 3.8% year-over-year to $628 million. Adjusted net income increased 11.9% year-over-year to $235 million, while its adjusted earnings per share increased 13.3% year-over-year to $1.28
WAB’s revenue is expected to increase 8.8% year-over-year to $2.23 million for the fiscal second quarter ending June 2023. Its EPS is expected to increase 8.3% year-over-year to $1.33 for the same quarter. Also, it has surpassed EPS estimates in each of the trailing four quarters, which is impressive.
Shares of WAB have gained 9.1% over the past year to close the last trading session at $97.48.
WAB’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. 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 Growth, Stability, Sentiment, and Quality. It is ranked #3 out of 15 stocks in the A-rated Railroads industry.
Beyond what is stated above, we’ve also rated WAB for Value and Momentum. Get all WAB ratings here.
West Japan Railway Company (WJRYY)
Based in Osaka, Japan, WJRYY provides passenger railway transport services in Japan. The company operates through Transportation Operations; Retail Business; Real Estate Business; and Other Businesses segments.
Its trailing-12-month EBITDA margin of 17.58% is 32.9% higher than the 13.23% industry average. Its trailing-12-month CAPEX/Sales of 17.63% is 505.3% higher than the 2.91% industry average.
WJRYY pays a $0.74 per share dividend annually, which translates to a 1.64% yield on the current price. The company has a four-year average dividend yield of 2.21%.
WJRYY’s operating revenues rose 35.3% year-over-year to ¥1.40 trillion ($10.18 billion) in the fiscal year quarter that ended March 31, 2023. Its profit came in at ¥93.87 billion ($684.68 million), compared to a loss of ¥110.76 billion in the previous-year quarter.
Its operating income came in at ¥83.97 billion ($612.46 million), compared to a operating loss of ¥119.09 billion in the previous-year quarter.
Street expects WJRYY’s revenue for the fiscal first quarter ending June 2023 to increase 5.7% year-over-year to $2.36 million. It has surpassed revenue estimates in three of the trailing four quarters.
The stock has gained 25% over the past year to close the last trading session at $46.16.
WJRYY’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
WJRYY has an A grade for Growth and a B in Stability. It is ranked #5 in the same industry.
Click here to see the additional POWR Ratings for WJRYY (Value, Momentum, Quality, and Sentiment).
L.B. Foster Company (FSTR)
FSTR provides engineered and manufactured products and services for the building and infrastructure projects worldwide.
Its trailing-12-month asset turnover ratio of 1.50x is 88.4% higher than the 0.80x industry average.
FSTR’s net sales increased 16.9% year over year to $115.49 million in the first quarter that ended March 31, 2023. Also, its gross profit increased 41.6% year-over-year to $23.29 million and adjusted EBITDA increased 54.3% year-over-year to $4.48 million.
FSTR’s revenue is expected to increase 7% year-over-year to $140.66 million for the fiscal second quarter ending June 2023. The company’s EPS for the same quarter is expected to increase 55.6% year-over-year to $0.28. Also, the company has surpassed revenue estimates in each of the trailing four quarters.
FSTR gained 15.2% year-to-date to close its last trading session at $11.15.
FSTR’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
FSTR also has a B grade for Growth and Stability. It is ranked #2 in the same industry.
For additional ratings for FSTR’s Value, Momentum, Quality, and Sentiment, click here.
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WAB shares were trading at $96.86 per share on Thursday morning, down $0.62 (-0.64%). Year-to-date, WAB has declined -2.80%, versus a 8.98% 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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