Kansas City Southern (NYSE:KSU) operates railroads in the Midwest and Southeast regions of the United States. It also operates railways to Mexico City. Its total railways cover over 6,300 miles.
The company recently posted first-quarter earnings. Total earnings per share rose 19% to $0.89. This was above analysts’ expectations. The main reasons the company had an increase in earnings was that automotive and intermodal shipments increased. Intermodal shipments use the same container across multiple modes of transportation by sea, road, or rail. This helped offset the lower coal shipments in the quarter.
The decrease in coal and agricultural shipments may be a slight cause for concern for investors. Coal shipments dropped 7% while agricultural shipments declined 28%. Railcars carrying autos soared 31%.
Ten analysts rate this company as a hold and three rate it as a buy. With a mix of growing and declining business units, the company is a hold for now. Earnings are expected to grow next year by an additional 10%, but watch closely for how these earnings are made.
Union Pacific Corporation (NYSE:UNP) operates over 31,000 route miles – considerably more than Kansas City Southern (NYSE:KSU). Union Pacific Corporation (NYSE:UNP) also has routes all across the country and is geographically more diverse.
The company also recently posted its first quarter earnings report. Total earnings rose 13% and beat analyst estimates by $0.08 per share. The same coal and agriculture shipping woes hit Union Pacific Corporation (NYSE:UNP) as well. Both of these divisions were down for the quarter.
It saw excellent growth in other sectors, though. Chemical shipments rose 14% and automobile freight rose 13%. Intermodal freight rose 9%.
This company is expected to witness a strong 14% earnings increase next year due to an increase in cross-border intermodal freight and oilfield shipments.
CSX Corporation (NYSE:CSX) is the second largest by route miles among the companies discussed here, totaling 21,000 miles across the country and Canada. It operates in 23 states east of the Mississippi River.
Because CSX Corporation (NYSE:CSX) operates in the Appalachian region, it has historically received much of its revenue from coal shipments. With this sector declining, CSX Corporation (NYSE:CSX) has had to make up the profits elsewhere. In its first quarter earnings release, it announced that coal revenue dropped 10%.
The company has been improving its infrastructure in a plan to increase its intermodal shipments. This is a popular and growing area of freight. Investors should see this plan of internal expansion as a positive sign.
The company also raised its dividend. The annual dividend carries a yield of 2.5% at $0.60 per share. It is also planning to buyback $1 billion worth of shares – another positive sign for investors.
The main factors affecting these companies
Each of these companies is faced with the same challenges of declining coal and agricultural shipments. So, they all must make up for the decline through other areas.
Two main areas fueling the growth of these stocks are automobile and intermodal transportation. As these continue to grow, so will the stocks. Each of these companies are great to hold for now. Continue to monitor the net income growth of each of these companies and the ways in which they earn it.
The article Should You Hop Onto These Stocks? originally appeared on Fool.com and is written by Austin Higgins.
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