Railroads Weekly Review: Norfolk Southern, CSX and Union Pacific

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During the past week, amid speculation of a merger between Norfolk Southern (NYSE:NSC) and Canadian Pacific Major, came the news that Norfolk Southern had agreed to purchase a few hundred miles of track from Canadian Pacific’s subsidiary. CSX and Union Pacific had a comparatively quite week, with both the railroads releasing their carloadings reports, which indicate continued growth into the fourth quarter.

Norfolk Southern

On Tuesday, November 18, Norfolk Southern agreed to purchase around 282 miles of track from Delaware & Hudson Railway, a subsidiary of Canadian Pacific railroad, for $217 million. [1] The rail line between Sunbury, Pa., and Schenectady, N.Y. will allow Norfolk Southern to offer connectivity in central Pennsylvania, upstate New York and New England with domestic and international markets.

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Norfolk Southern’s stock declined by about 0.5% over the week through Thursday. We currently have a price estimate of $95 for Norfolk Southern. We estimate revenues of $11.9 billion, compared to a consensus estimate of $11.85 billion and EPS of $6.57 for this year.

Click here to see our complete analysis of Norfolk Southern.

CSX’s Carloading Report

CSX released its carloading report for quarter to date ending November 15. [2] The highlight of the report was CSX’s petroleum products shipments, which have grown 58.8% compared to the same period in the previous year. It is also encouraging to see low-teens growth in its coal shipments. We believe that this may be the result of the contract win early in the year. CSX’s agricultural and food product shipments have declined significantly, but only partially offsetting growth in other segments. Construction related shipments such as lumber, sand, crushed stone and gravel continued to grow, driven by the strong housing construction activity in the U.S.

CSX’s stock gained by around 1.4% over the week through Thursday. We currently have a price estimate of $28 for CSX. We estimate revenues of $12.63 billion, compared to consensus estimate of $12.55 billion and EPS of $1.87 for this year, in line with consensus estimates.

Click here to see our complete analysis of CSX.

Union Pacific

Union Pacific released its carloading report for quarter to date ending November 15. [3] Its coal shipments grew 10% compared to the same period in the previous year driven by the rejuvenation in domestic demand for coal at utilities. Union Pacific’s intermodal shipments grew in high single digits, benefiting from trucking capacity constraints in the U.S., which have led shipments to move from highway to rails.

Union Pacific’s stock gained slightly over the week through Thursday, November 20. We currently have a price estimate of $97 for Union Pacific. We estimate revenues of $23.8 billion, compared to consensus estimate of $23.7 billion and EPS of $5.51 for this year, in line with consensus estimates.

Click here to see our complete analysis of Union Pacific.

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Notes:
  1. Norfolk Southern to buy part of northeast U.S. rail line from Canadian Pacific, November 17, 2014, www.timescolonist.com []
  2. CSX’s 2014 Week 46 Cardloading Report, www.csx.com []
  3. Union Pacific’s 2014 Week 46 Cardloading Report, www.up.com []