CSX struggled during fiscal 2012, as the company was only able to eke out a tiny increase in revenue versus the prior year. In addition, the company reported just 7% diluted earnings per share growth for 2012 year-over-year.
CSX kept its head above water last year and fortunately improved measurably during the first quarter. Over the first three months, revenue remained flat, but CSX posted record operating income and earnings per share. In addition, CSX provided investors with a 7% dividend increase.
Canadian Pacific Railway, as its name suggests, is headquartered in Calgary and operates mainly throughout Canada, although the company does have operations in the U.S. as well.
Canadian Pacific trades more or less in line with its competitors, holding a forward P/E multiple of 15 times, whereas Union Pacific and CSX trade for 15 times and 12 times forward earnings. Although, judging by Canadian Pacific’s fantastic first quarter, it may very well deserve a higher multiple.
Canadian Pacific’s first quarter of 2013 was the best quarter in its 132-year history. The company’s earnings skyrocketed 53%, and CEO Hunter Harrison added that he expects great results for the remainder of the full year.
Few degrees of separation
These three railroads operate extremely similar businesses, and consequently, their stocks trade similarly. However, while CSX’s results in recent quarters have been hampered by the struggles seen in coal shipments, Union Pacific and Canadian Pacific outperform.
That being said, there’s always a price to pay for outperformance. It’s worth noting that Union Pacific Corporation (NYSE:UNP) and Canadian Pacific hold higher multiples than CSX, and pay lower dividend yields due to their high-flying share prices. CSX currently yields 2.6%, while both Union Pacific and Canadian Pacific yield less than 2% at recent prices.
At the same time, it appears that in the railroad industry, you get what you pay for. Union Pacific Corporation (NYSE:UNP) and Canadian Pacific Railway Limited (USA) (NYSE:CP) certainly aren’t expensive at current levels and have businesses that are on more solid financial footing than most industry competitors. As a result, I’d consider Union Pacific Corporation (NYSE:UNP) and Canadian Pacific Railway Limited (USA) (NYSE:CP) to be best-in-breed railroads in the current environment.
The article Is Union Pacific the Best Railroad Stock? originally appeared on Fool.com and is written by Robert Ciura.
Robert Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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