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Are railroad stocks (KSU, UNP, NSC, GWR, PWX, CNI, BNI) ready to stay on track to see even...

Are railroad stocks (KSU, UNP, NSC, GWR, PWX, CNI, BNI) ready to stay on track to see even higher levels? Despite valuations that are getting stretched after a broad sector rally, a compelling case can be made that shares will keep motoring higher. The industry will pour $14B into improvements this year and freight demand is forecast to soar 50% by 2050. The stat that makes the bull case all by itself: Trains can move a ton of freight about 500 miles on one gallon of fuel - an efficiency rate 3X or 4X better than trucks.
Comments (9)
  • auto44
    , contributor
    Comments (2973) | Send Message
    3x or 4x??????? A truck can't move itself 10 miles on a gallon of fuel. I have heard this claim before but find it doubtful that anything can move a ton of freight 500 miles on a gallon of fuel. No doubt that trains do it way better(more efficiently) than a truck.
    27 Mar 2013, 03:19 PM Reply Like
  • tomofcg
    , contributor
    Comments (12) | Send Message
    It only looks wrong because we don't normally think about the weight being hauled. In your example a truck hauling 1 ton, gets 10 ton miles per gallon. A truck hauling 10 tons of cargo gets 100 ton miles per gallon. The train is more efficient and is averaging about 450 ton miles per gallon. It is 3 or 4 times more efficient PER TON MILE.
    27 Mar 2013, 05:14 PM Reply Like
  • frosty
    , contributor
    Comments (689) | Send Message
    Ahem, a lot can happen between now and 2050. Besides, that's something like 1.5% per year compounded.
    27 Mar 2013, 03:57 PM Reply Like
  • worldbank
    , contributor
    Comments (118) | Send Message
    Not all railroads are alike, thus that 1.5% rate of growth doesn't fit all. It seems that rails involved in moving oil out of the Bakken fields are much more likely to grow earnings at a faster rate than rails dependent upon the overall growth in the US economy. Further, Eastern rails haven't been able to replace their drop in coal volume, where as UNP and BNI and KSU are picking up lots of new oil volume.
    27 Mar 2013, 05:04 PM Reply Like
  • Misho ILIEV
    , contributor
    Comments (569) | Send Message
    This 1,5% probably relates to the volume of transported goods and not necessarily to the growth of the profit. The profit might increase faster than the volume of goods transported.
    28 Mar 2013, 06:09 AM Reply Like
  • worldbank
    , contributor
    Comments (118) | Send Message
    You are correct, the 1.5% is for freight traffic. The point I was making is that a company growing volume at 1.5% per year would be considered rather pathetic and not worth your investment dollars. Thus within the rails you have look at specific rail companies that will be growing segments with higher profit margins, such as those with access to the Bakken Oil volume.
    29 Mar 2013, 10:16 AM Reply Like
  • Beardaddy
    , contributor
    Comments (32) | Send Message
    Coal is still lackluster and higher RPU (YOY comps should be improving soon but I believe overall coal volumes are still below recent year highs) future freight growth is highest for intermodal which has historically had lower RPU, and the $14 B mentioned may include large amounts for non-performing regulatory investments like positive train control. Rails are capital intensive so need large capital infusions each year just to maintain the network so total capex is not a very good metric for future growth. The new crude oil movements from upper midwest to refineries is a serious new market for the rails, with excellent margins and best of all, the shippers invest in their own tank cars rather than the rails--high RPU low capex. Autos are strong and rails haul large amounts of finished autos. Dividend growth remains excellent and reliable.
    27 Mar 2013, 04:46 PM Reply Like
  • G.Ray
    , contributor
    Comments (189) | Send Message
    " . . . freight demand is forecast to soar 50% by 2050." Though the Wall Street Journal said that demand is expected to grow by half by 2040, I would hardly call even that 50% over 27 years soaring. What the WSJ said is soaring is current capital expenditures and expanding capacity. They did not characterize a 50% increase in freight demand over the next 27 years as soaring.
    27 Mar 2013, 04:48 PM Reply Like
  • nicthu
    , contributor
    Comments (47) | Send Message
    Yeah, who writes these blurbs, and why aren't we allowed to UNLike things on this site anymore??
    27 Mar 2013, 10:18 PM Reply Like
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