Canadian Pacific Railway Limited (USA) (CP), Norfolk Southern Corp. (NSC): All Aboard the Oil Train – Which Company is Best Positioned to Capitalize on Surging U.S. Oil Product

Page 1 of 2

Oil production in the United States has moved sharply higher in recent years due to high crude oil prices and technological advances in the extraction of petroleum. Much of this new capacity resides in states such as: North Dakota, Montana, Pennsylvania and Ohio; requiring land transportation to deliver the crude oil to refining facilities located elsewhere. While pipelines are one method to transport oil, another method is rail with the number of crude oil containing railcars expanding rapidly over the past few years. This shift is a boon for railroads and manufacturers of railcars representing a compelling bullish thesis. Several companies well situated to capitalize on this trend are presented below.

Canadian Pacific (NYSE:CP) operates over 14,700-miles of railway that serve the principle centers of Canada and the U.S. Midwest and Northeast. This geographical focus allows the company to deliver oil from both the Bakken shale and Canada’s oil sands, constituting a considerable competitive advantage. Oil contributes 6% to the company’s bottom line; however, the present valuation of the company seems rather rich at 37.5 times TTM earnings. While, analysts project sizable earnings growth of 23.93% over the next year, the valuation of Canadian Pacific Railway Limited (USA) (NYSE:CP) seems higher than warranted by historical earnings growth.  Over the past five years the average price-to-earnings multiple has been 18.05 (Table 1), nearly half the present valuation.  Assuming that this sizable growth does come to pass, Canadian Pacific Railway Limited (USA) (NYSE:CP)’s PEG ratio is still a rather lofty 2.05, thus waiting for a better price seems justified at the present time.

Canadian Pacific Railway Limited (USA) (NYSE:CP)

Norfolk Southern Corp. (NYSE:NSC) operates a 20,000-mile railway network, most of which is east of the Mississippi and runs nearly the entire length of the United States from north to south. While Norfolk Southern Corp. (NYSE:NSC) has some exposure to oil in Pennsylvania and Ohio, the company’s earnings declined by 8.7% year-over-year as Norfolk Southern is quite exposed to declining coal shipments, which comprise 20% of revenues. Norfolk Southern Corp. (NYSE:NSC) declined to the mid-$50 per share range last year as a result of investor disappointment, but has recovered since.

While the company is shareholder friendly with a generous dividend and buyback program it seems unlikely that Norfolk Southern Corp. (NYSE:NSC) will be able to outperform, as weakness in coal shows no sign of abating. The current share repurchase program is in effect until the end of 2014 and Norfolk Southern Corp. (NYSE:NSC) has consistently bought back shares to lower its float by 16% over the past five years.  The company also pays a 2.75% dividend at the present price.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!