The freight transportation industry is steadily recovering from the pandemic-driven shock. While rail traffic came to a virtual standstill during the initial days of the pandemic as strict restrictions were placed on travelling, traffic has been reviving with increasing consumer demand ahead of the holiday season.
The current trends in shopping have played an important role in the revival of the freight transportation industry. The rise in e-commerce shopping amid the pandemic has led to wider supply chains, both within the country and internationally. Moreover, as demand is expected to rise in the upcoming months due to high shopping volume for the holidays, bulk transports are likely to benefit. Also, the rising fears of a second wave of coronavirus could lead to panic shopping in the near future, benefiting freight transportation companies.
Union Pacific Corporation (UNP), Canadian National Railway Company (CNI), Norfolk Southern Corporation (NSC), and C.H. Robinson Worldwide, Inc. (CHRW) have demonstrated financial stability with rigorous efforts to adapt to the “new normal.” These stocks are well positioned to soar with the expected surge in traffic in upcoming months.
Union Pacific Corporation (UNP)
UNP is a rail transport service provider for agricultural products, construction materials, and fossil fuels, such as coal, petroleum, and industrial chemicals. UNP’s rail network comprises 32,340 route miles connecting Eastern regions to the pacific coast.
As a major freight transportation company, UNP is an important part of the US supply chain. Though affected by the pandemic-driven economic slump, UNP’s revenues are expected to pick up with companies returning to fully functional modes.
In September, UNP exchanged several debentures and expiring senior notes for cash and new notes due 2062. This is expected to reduce the short-term debt burden of the company, ensuring higher liquidity and profitability.
For the second quarter that ended June 2020, UNP managed to generate $4.0 million in operating revenues despite the decline in the railway operation volume. Its net income stood at $1.1 billion for the quarter. Analysts expect UNP’s EPS and revenue to increase 18% and 8.4%, respectively, next year. The company’s EPS is expected to grow 6.8% per annum over the next five years.
UNP has gained more than 100% since hitting its 52-week low of $105.08 in March. The stock hit its 52-week high of $210.95 in October.
How does UNP stack up for POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
B for Peer Grade
A for Industry Rank
A for Overall POWR Rating.
It is currently ranked #1 out of 14 stocks in the Railroads industry.
Canadian National Railway Company (CNI)
CNI is a rail transportation company having 2,000 route miles across the United States, Canada, and Gulf of Mexico. It engages in transport of both perishable and non-perishable items, supply chain services, and trucking services.
Despite a complete lockdown in the countries it operates in, as well as an intermittent travel ban, CNI managed to operate its essential transportation services. With the gradual reopening of the economy, many non-essential services have also resumed. As a result, CNI reported revenue worth C$750 million for the second quarter that ended June 2020. It generated an adjusted operating income of C$1.3 billion during this time. CNI generated over C$1 billion in free cash flow during the quarter. Moody reaffirmed CNI’s investment grade credit rating of A2 with a stable outlook, which is reassuring.
JJ Ruest, President and Chief Executive Officer of CN said, “I’m pleased to reaffirm our commitment in encouraging the economic recovery through our C$2.9B capital investment plan for 2020 as well as our new investment announcement of the purchase of approximately 1,500 new, efficient, high-capacity, covered hopper cars to expand our grain export business for delivery starting in January of 2021.”
CNI moved 7.76 million metric tons of grain in the third quarter ending September 2020. This marks seven consecutive months of grain delivery improvement, indicating recovering business operations from the COVID-19 obstructions.
CNI’s EPS is expected to grow 18.2% next year, and at a rate of 4% per annum over the next five years. The consensus EPS estimate of $11.5 billion for 2021 indicates a 9.8% increase year-over-year. Also, CNI beat the street EPS estimates in each of the trailing four quarters, which bodes well for the stock.
CNI gained more than 70% to hit its 52-week high of $112.57 in October since hitting its 52-week low of $65.13 in March.
CNI is rated “Strong Buy” in our POWR Ratings system, consistent with the financial strength and growth potential of the company. It holds an “A” in Trade Grade, Peer Grade, Buy & Hold Grade, and Industry Rank. It is also ranked #2 out of 14 stocks in the Railroads industry.
Norfolk Southern Corporation (NSC)
NSC operates in the rail transportation business across the United States, as well as engages in overseas freight transportation services through the Atlantic and Gulf coast. It also offers logistics and intermodal services, and commuter passenger services. The company has taken multiple actions to reduce carbon emissions, such as choosing rail transportation over highway shipping, allowing it to save over 1.5 billion diesel fuel in 2019. It has also invested $2 billion for maintaining safety and increasing the efficiency of its rail network.
On August 6th, NSC signed Operation Clean Sweep Pledge to eliminate plastic pollution in the environment, making it the most recent Class 1 railroad in the United States to voluntarily do so. This ensures sustainable growth of the company in upcoming years, with respect to the ESG standards.
Despite the pandemic driving down freight transportation services across the country, NSC managed to generate $610 million in income from railway operations in the second quarter that ended June 2020. Cash and cash equivalents, and restricted cash balance increased 217.5% from the year-ago value to $1.1 billion in the first six months of 2020.
NSC bought back 3.9 million shares in the first half of 2020 for $629 million. This has positive implications for the stock, as it implies higher valuation for NSC shares.
NSC’s EPS is expected to grow at a rate of 6.8% per year over the next five years. Also, NSC’s earnings surprise history is impressive, as it beat the street EPS estimates in three out of trailing four quarters. Analysts expect NSC’s revenue and EPS to grow 9.4% and 22.8%, respectively, next year.
NSC gained more than 95% to hit its 52-week high of $224.99 in September, since hitting its 52-week low in March.
NSC is rated a “Strong Buy” in our POWR Ratings system, consistent with its strong business model. It has an “A” in Trade Grade, Buy & Hold Grade, and Industry Rank. It is also ranked #4 out of 14 stocks in the Railroads industry.
C.H. Robinson Worldwide, Inc. (CHRW)
CHRW provides transportation and logistics services across the Americas, Europe, Asia, Australia, and New Zealand. It operates through four primary segments – North American Surface Transportation (NAST), Global Forwarding, Robin Fresh, and All Other and Corporate. The company transports freight through rail and trucks.
In July, CHRW partnered with Microsoft Corporation (MSFT) to digitally transform supply chain systems through CHRW’s Navisphere and Microsoft Azure.
CHRW’s cash flow from operations increased 124% year-over-year to $447.1 million in the second quarter that ended June 2020. Despite the pandemic-led disruptions, CHRW generated net income of $143.9 million during this period. Also, net revenue from the global forwarding segment rose 14.8% from the year-ago value to $163 million, while net income from operations from this segment grew 120.8% to $58.8 million.
Analysts expect CHRW’s EPS and revenue to grow 19% and 6.3%, respectively, next year. the company’s EPS is expected to increase at 4.1% per annum over the next five years.
CHRW has gained more than 85% since hitting its 52-week low of $56.94 in march. The stock hit its 52-week high of $106.75 in October.
It’s no surprise that CHRW is rated “Strong Buy” in our POWR Ratings system. It has an “A” for Trade Grade and Buy & Hold Grade, and a “B” for Peer Grade. It is ranked #1 out of 21 stocks in the Trucking Freight industry.
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UNP shares were trading at $200.93 per share on Wednesday afternoon, down $5.85 (-2.83%). Year-to-date, UNP has gained 12.99%, versus a 8.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More…
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