Despite macroeconomic challenges, the railroad industry is growing due to the ongoing industrial sector revival and the increasing demand to transport raw materials. The need for rail freight transport, which efficiently moves large volumes of cargo over long distances, is increasing.
To that end, it could be wise to buy fundamentally strong railroad stocks Central Japan Railway Company (CJPRY), West Japan Railway Company (WJRYY), Westinghouse Air Brake Technologies Corporation (WAB), and L.B. Foster Company (FSTR).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the railroad industry is well-positioned for growth.
As global trade and industrialization increase, the railway sector is expanding. Rail shipment of goods contributes significantly to total railroad sales, accounting for nearly 80%. This growth is further supported by the expected 3% CAGR in the global rail transport market until 2028.
In 2022, the railroad industry generated over $113 billion in total revenues, with freight rail contributing over 95% of that figure. Rail transportation, known for its reliability and cost-effectiveness, continues to boost productivity, competitiveness, and growth for businesses relying on it.
Low freight transportation costs, rising investments, and growing cross-border trade drive significant growth. Additionally, increasing demand for freight rail networks and investments in high-speed rail links are expected to fuel market demand.
The global railroad market is projected to grow at a CAGR of 4.7% due to rapid industrialization and robust tourism expansion. By 2030, it is expected to reach a value of $427.72 billion.
Considering these conducive trends, let’s take a look at the fundamentals of the four above-mentioned Railroads stocks, beginning with the fourth choice.
Stock #4: Central Japan Railway Company (CJPRY)
Headquartered in Nagoya, Japan, CJPRY engages in the railway and related businesses in Japan. The company operates through Transportation, Merchandise and Other, Real Estate, and other segments. The company provides track maintenance, construction, construction consulting, contracted accounting, financial services, and manufactures and maintains railway rolling stock and machinery.
In terms of the trailing-12-month EBITDA margin, CJPRY’s 44.43% is 228.6% higher than the 13.52% industry average. Likewise, its 29.44% trailing-12-month EBIT margin is 201.8% higher than the 9.75% industry average. Its 31.24% trailing-12-month Capex/Sales is 968% higher than the 2.93% industry average.
CJPRY’s operating revenues for the fiscal year ended March 31, 2022, increased 13.6% year-over-year to ¥935.14 billion ($7.36 billion). Its operating income came in at ¥1,708 ($7.36 billion), compared to an operating loss of ¥184,751 ($7.36 billion) in the year-ago quarter.
In addition, net loss narrowed 301.2% year-over-year to $49.63 billion. Also, its basic net loss per share of common stock narrowed 288.6% year-over-year to ¥263.9.
Street expects CJPRY’s revenue for the quarter ending September 30, 2023, to increase 25.5% year-over-year to $2.68 billion. Over the past six months, the stock gained 16.6% to close the last trading session at $13.22.
CJPRY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability and Quality. Within the B-rated Railroads industry, it is ranked #6 out of 15 stocks. To see CJPRY’s ratings for Growth, Value, Momentum, and Sentiment, click here.
Stock #3: West Japan Railway Company (WJRYY)
Based in Osaka, Japan, WJRYY provides railway transport services in Japan. The company operates through Mobility, Retail, Real Estate, Travel and Regional Solutions, and other segments.
In terms of the trailing-12-month EBITDA margin, WJRYY’s 18.92% is 40% higher than the 13.52% industry average. Likewise, its 18.22% trailing-12-month Capex/Sales is 522.7% higher than the 2.93% industry average.
WJRYY’s operating revenues for the first quarter ended June 30, 2023, increased 24.3% year-over-year to ¥369.27 billion ($2.50 billion). The company’s profit came in at ¥48.63 billion ($0.33 billion). Its operating income increased 167.3% year-over-year to ¥52.21 billion ($0.35 billion). Also, its profit per share came in at ¥136.71.
For the quarter ending September 30, 2023, WJRYY’s revenue is expected to increase 28.2% year-over-year to $1.62 billion. Over the past six months, the stock gained 12.3% to close the last trading session at $44.51.
WJRYY’s strong prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Stability and Sentiment. It is ranked #4 in the same industry. To see WJRYY’s Value, Momentum, and Quality ratings, click here.
Stock #2: 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 July 26, 2023, WAB announced an order to enhance an additional 60 locomotives in CN’s existing fleet through Wabtec’s modernization program. These upgrades include transforming the locomotives from DC to AC-powered traction and adding digital solutions, extending their lifespan, and offering up to 18% fuel efficiency improvements.
Alicia Hammersmith, President at WAB Freight Services, said, “Our modernization program supports the circular economy and is a key component of Wabtec’s sustainability approach through processes that reduce waste, extend life, and improve fuel efficiency, thereby driving emissions reductions and helping customers save money.”
On July 24, 2023, WAB announced receiving orders for 3,500 of its new Generation 3 Collision Avoidance System (Gen 3 CAS) from three major global mining companies. The Gen 3 CAS offers advanced features, enhancing safety and performance in mining operations. It reduces downtime, improves productivity, and contributes to resource optimization, aligning with the customers’ zero-harm objectives.
WAB Digital Mine’s innovations strengthen WAB by positioning it as a pioneer in mining safety and efficiency, fostering growth and market leadership.
In terms of the trailing-12-month EBIT margin, WAB’s 12.92% is 32.4% higher than the 9.75% industry average. Likewise, its 17.71% trailing-12-month EBITDA margin is 31% higher than the 13.52% industry average. However, its 7.54% trailing-12-month net income margin is 21.8% higher than the 6.19% industry average.
For the fiscal second quarter that ended June 30, 2023, WAB’s net sales increased 17.5% year-over-year to $2.41 billion. Its gross profit increased 12.1% year-over-year at $723 million. Its income from operations increased 16.2% year-over-year to $395 million.
In addition, the company’s adjusted net income increased 13.3% year-over-year to $256 million. Also, its adjusted EPS came in at $1.41, representing an increase of 14.6% year-over-year.
For the quarter ended September 30, 2023, WAB’s EPS and revenue are expected to increase 19.9% and 15.7% year-over-year to $1.46 and $2.41 billion, respectively. It surpassed the consensus EPS estimates in each of the four trailing quarters. Over the past year, the stock has increased 22.6% to close the last trading session at $107.69.
WAB’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth, Sentiment, and Quality. It is ranked #3 in the same industry. In total, we rate WAB on eight different levels. Beyond what we stated above, we also have given WAB grades for Value, Momentum, and Stability. Get all the WAB’s ratings here.
Stock #1: L.B. Foster Company (FSTR)
FSTR provides engineered and manufactured products and services for building and infrastructure projects worldwide. It operates in three segments; Rail, Technologies, and Services Segment, Precast Concrete Products Segment, and Steel Products and Measurement Segment.
In terms of the trailing-12-month asset turnover ratio, FSTR’s 1.48x is 82.7% higher than the 0.81x industry average.
FSTR’s sales for the second quarter ended June 30, 2023, increased 12.5% year over year to $148 million. Its gross profit increased 38.6% year-over-year to $32.30 million. Its net income attributable to FSTR increased 75% year-over-year to $3.50 million.
In addition, the company’s adjusted EBITDA increased 73.8% year-over-year to $10.60 million. Also, its EPS came in at $0.32, representing an increase of 77.8% year-over-year.
Analysts expect FSTR’s revenue for the quarter ending September 30, 2023, to increase 8% year-over-year to $140.39 million. It surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has gained 91% year-to-date to close the last trading session at $18.49.
It’s no surprise that FSTR has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It is ranked first in the B-rated Railroads industry. It has a B grade for Growth, Stability, and Sentiment. Click here to see FSTR’s Value, Momentum, and Quality ratings.
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CJPRY shares were trading at $13.28 per share on Monday afternoon, up $0.06 (+0.45%). Year-to-date, CJPRY has gained 9.03%, versus a 17.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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