Railways are the best when it comes to cargo as they can carry far more cargo than a truck or plane along with offering a wider and reliable range of weights and shipment times. After the deregulation of the rail industry in the 1980’s, the companies have been allowed to work more profitably and have also enjoyed market-beating returns. The main reasons for these successes are the improvement in automation technologies, increased congestion of highways, and fuel efficiency. The industry has been on the favorites list of many investors, including Bill Gates, mainly through his value-investing chief investment officer ,Michael Larson, is the largest shareholder of Canadian National Railway. The legendary, Warren Buffett liked went so far that he acquired the entirety of the Burlington Northern Sante Fe railroad in 2010 (his largest acquisition ever).
With so many performers in the industry it really becomes tough to pick a few or one. I have tried to compare in the following paragraphs two of performers, and also of the two which one to choose, if one really has to pick one.
Norfolk Southern Corp. (NYSE:NSC) is a company engaged in the rail transportation of raw material, intermediate products, and finished goods primarily in South East, East and Midwest. It is based in Virginia. Norfolk Southern Corp. (NYSE:NSC) also transports overseas freight through several Atlantic and Gulf Coast ports. It gives logistics services and offers intermodal network in the eastern half of the United States.
CSX Corporation (NYSE:CSX) much like NSC is a transportation supplier. The company provides rail based transportation services, including traditional rail services and the transport of intermodal containers and trailers. CSX Corporation (NYSE:CSX) Transportation, the subsidiary, provides linkage to transportation supply chain through its approximately 21,000 miles route mail network, which serves centers in 23 states east of the Mississippi river, the District of Columbia, and the Canadian provinces of Ontario and Quebec.
Neck to Neck
Norfolk Southern Corp. (NYSE:NSC) with a 52 week range of $73.11- $74.54, has a price earnings ratio of 13.68, and EPS of 5.37. The company declared a dividend of $2.00 per share with a yield of 2.70%. While CSX Corporation (NYSE:CSX) with 52 week range of $22.62-$23.32, has a price earnings ratio of 12.70, and Earnings per share of 1.79. CSX declared dividend 0.56 with a yield of 2.40%. Norfolk posted a profit of $413 million, or $1.30 a share, down from $480 million, or $1.42 a share, a year earlier. While, CSX reported a profit of $443 million, down from $457 million, a year earlier.
-Norfolk enjoys a higher dividend yield when compared to CSX.
-When it comes to balance sheet, Norfolk has a slightly stronger balance sheet with a lower debt/equity ratio than CSX.
-In terms of rail network, CSX is marginally ahead of Norfolk. Norfolk has a slightly smaller rail network, with less extension north and south across the eastern coast, while CSX Corporation (NYSE:CSX) has more extension north and south across the eastern coast.
-Norfolk Southern Corp. (NYSE:NSC) has been consistent with strong operating performance, while CSX had poor financial management years ago, but has rebounded with strong performance.
-Compared to CSX, Norfolk has a slightly more exposure to coal, which is a major headwind currently.
|Seven Year Revenue Growth Rate||4.6%||3.9%|
|Seven Year EPS Growth Rate:||11.4%||8.7%|
|Seven Year Dividend Growth Rate:||33.1%||21.4%|
|Current Dividend Yield:||2.85%||3.31%|
|Debt to Equity||109.22||90.32|
|Balance Sheet Strength:||Leveraged, Fair||Fair|
As per the analysts, the transportation business will have strong performance in the coming years. CSX is expected to grow earnings approximately 12% over the next few years, whereas Norfolk is also expected to increase its earnings more than 10%.
The Competitors of CSX and NSE are Kansas City Southern (NYSE:KSU), Canadian Pacific Railway Ltd, and Union Pacific.
Kansas City Southern posted a revenue of $569 million, an increase of 7% from the corresponding quarter of 2011. The diluted EPS for the fourth quarter came in at $0.83. The revenue for the Canadian Pacific was also up by 2% in the fourth quarter. Union Pacific posted a new record earnings of $2.19 per share, increase of 10% compared to 2011.
Both CSX Corporation (NYSE:CSX) and Norfolk Southern have been affected by the declining demand of coal in the energy Industry due to increased demand of cheap natural gas from Shale fields. The coal is transported up to the market by rails whereas natural gas is supplied via pipeline, cutting out railroad completely. Coal is the single largest bulk cargo of these companies. The overall coal transported by train declined by 16% in January 2013. For the latest quarter, CSX’s coal volumes were down 19%, while Norfolk Southern’s was down 13%.
Which is better?
Both the companies face similar risks. The volume and revenue of railroad company largely depend on the economy. Both CSX and Norfolk have overlapping rail routes, which mean that it will keep the pricing competitive and efficient. A large portion of revenue comes from transporting coal. Both companies were hit by decrease in coal volume. Norfolk Southern Corp. (NYSE:NSC) is one of the fortune 500 companies, and so is the CSX. Norfolk ranks 241 out of 500 in the Fortune 500 with a market cap of US$23.08 billion. The ranking of CSX was 226 out of 500 with a market cap of 23.18 billion. Norfolk is the third largest railroad by revenues whereas CSX Corporation (NYSE:CSX) is ahead of Norfolk Southern Corp. (NYSE:NSC). CSX is the largest competitor to Norfolk in Eastern United States. Both companies cover similar territory and therefore both are capable of affecting the market perception of each other. CSX, one of the largest railroad companies, has declined more than 7% over the past year. NSC has declined by 17% over the past year. CSX operates approximately 21,000 miles in 23 U.S. states, while Norfolk operates 20,000 miles in 22U.S. states.
For the long term both the stocks will be a good addition to one’s portfolio, but if one really has to choose a winner it will be from the short term perspective. Considering the above factors we can say that CSX is slightly ahead of Norfolk Southern Corp. (NYSE:NSC). Except for a lower debt to equity, higher dividend, yield and coal factor; CSX Corporation (NYSE:CSX) leads on all parameters, including better earnings, better analyst reviews, less decline in share price than Norfolk, and other balance sheet parameters.
The article Which Railroad Stock to Pick Between These Two? originally appeared on Fool.com and is written by Aman Jain.
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