The railroad market is growing due to global investments in railway projects and a shift towards rail freight driven by cost-effectiveness and the growth of global e-commerce. Thus, investors could consider investing in top railroad stocks West Japan Railway Company (WJRYY), Westinghouse Air Brake Technologies Corporation (WAB), and L.B. Foster Company (FSTR) for potential growth opportunities.
With the rise in consumerism and e-commerce, the freight railroad sector is expanding. For instance, U.S. freight railroads saw a 2.3% a year-ago increase in carload and intermodal volumes for the first week of 2024, with total carloads up 0.9% to 208.18 thousand and containers/trailers climbing 3.7% to 209.08 thousand.
Besides, the U.S. Department of Transportation’s Federal Railroad Administration (FRA) awarded $8.20 billion for 10 passenger rail projects nationwide in December last year. This investment, along with a previous $16.40 billion allocation for 25 projects, brings the total announced by the Biden-Harris Administration to nearly $30 billion for the nation's rail system.
In addition, the global number of users in the 'Trains' segment of the shared mobility market is projected to grow by a total of 85.20 million users or by 8.6% between 2024 and 2028, reaching a new peak of 1.10 billion users in 2028, marking nine consecutive years of growth.
Moreover, service enhancements, sustainability initiatives, and technological advancements fuel growth in the railroad industry, making rail a preferred choice for shippers seeking improved efficiency and environmental responsibility. The global railroad market is expected to grow at a CAGR of 5.6% by 2030.
Considering these conducive trends, let’s examine the fundamentals of three Railroads stocks, starting with the third choice.
Stock #3: West Japan Railway Company (WJRYY)
Based in Osaka, Japan, WJRYY operates a range of services, including passenger transportation, retail, real estate, travel agency, and other businesses. Its diverse portfolio encompasses mobility solutions, retail operations, real estate management, travel services, and additional ventures such as convenience stores and electronic money services.
The company pays a dividend of $0.92 annually, which translates to a yield of 2.22% on the prevailing price level, which is equal to its four-year average dividend yield.
WJRYY’s revenue has grown at a CAGR of 1.2% over the past five years. Over the same period, the company’s net income has increased at a CAGR of 2.2%, and its total assets have grown at a CAGR of 3.1%.
During the nine months, which ended December 31, 2023, WJRYY’s operating revenues rose 22.5% year-over-year to ¥1.19 trillion ($7.95 billion). The company's operating income and profit grew 146.4% and 25.7% from a year-ago quarter to ¥172.45 billion ($1.15 billion) and ¥113.64 billion ($756.56 million), respectively.
As of December 31, 2023, its total liabilities amounted to ¥2.43 trillion ($16.18 billion), compared to its total liabilities of ¥2.59 trillion ($17.25 billion) as of March 31, 2023.
For the fiscal year ending March 31, 2024, the company expects its operating revenues and operating income to be ¥1.63 trillion ($10.87 billion) and ¥160 billion ($1.07 billion), respectively.
WJRYY’s revenue is expected to grow 8.2% year-over-year to $6.29 billion for the fiscal year ending March 2024. The company surpassed the revenue estimates in three of the trailing four quarters, which is impressive.
WJRYY’s shares have surged 7.1% over the past three months to close the last trading session at $41.24.
WJRYY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.
It has a B grade for Growth and Stability. Among the 15 stocks in the B-rated Railroads industry, it is ranked #4.
In addition to the POWR Ratings stated above, access WJRYY’s Value, Momentum, Sentiment, and Quality ratings here.
Stock #2: Westinghouse Air Brake Technologies Corporation (WAB)
WAB provides technology solutions and services for the global freight rail and passenger transit industries, offering locomotives, propulsion systems, braking equipment, and maintenance services. Its comprehensive portfolio includes a wide range of products and services catering to rail and transit operators worldwide.
On February 14, 2024, WAB declared a regular quarterly common dividend of 20 cents per share, payable to shareholders on March 8, 2024. The company pays $0.71 annually, which translates to a yield of 0.53% on the prevailing price level. Its four-year average dividend yield is 2.22%.
WAB’s revenue has grown at a CAGR of 8.6% over the past three years. Over the same period, the company’s EBIT has increased at a CAGR of 15.2%, and its net income and EPS have grown at CAGRs of 25.3% and 27.8%, respectively.
In the fourth quarter, which ended December 31, 2023, WAB’s net sales increased 9.5% from a year-ago quarter to $2.53 billion. The company's adjusted income from operations and net income surged 22.4% and 17.3% from the previous-year quarter to $431 million and $276 million, respectively. Moreover, its adjusted EPS grew 18.5% year-over-year to $1.54.
For the fiscal year 2024, the company anticipates sales between $10.05 billion and $10.35 billion and adjusted EPS in the range of $6.50 to $6.90.
Street expects WAB’s revenue and EPS to grow 5.5% and 14.4% year-over-year to $10.21 billion and $6.77, respectively, for the fiscal year ending December 2024. The company surpassed the revenue estimates in each of the trailing four quarters.
The stock has gained 38.9% over the past nine months to close the last trading session at $134.28. It surged marginally intraday.
WAB’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
WAB has a B grade for Growth, Stability, and Quality. Within the same industry, it is ranked #3.
To access additional ratings for WAB’s Value, Momentum, and Sentiment, click here.
Stock #1: L.B. Foster Company (FSTR)
FSTR provides a diverse range of engineered and manufactured products and services for global building and infrastructure projects, including rail materials, precast concrete products, and steel components. Its offerings cater to various industries, such as transportation, construction, and oil and gas markets.
FSTR’s revenue has grown at a CAGR of 1.4% over the past three years. Over the same period, the company’s levered FCF has increased at a CAGR of 21.4%.
During the third quarter, which ended September 30, 2023, FSTR’s total net sales amounted to $145.35 million, up 11.8% from the prior-year quarter. The company generated operating profit and net income of $2.69 million and $447 thousand, compared to its previous-year quarter’s operating loss and net loss of $1.12 million and $2.11 million, respectively. In addition, its adjusted EBITDA grew 14.2% year-over-year to $10.59 million.
The company expects its fiscal year 2023 net sales to range from $530 thousand to $540 thousand and adjusted EBITDA between $29 thousand and $31 thousand.
Analysts expect FSTR’s revenue to grow 7.8% year-over-year to $536.52 million for the fiscal year ended December 2023. Its EPS for the same fiscal year is expected to be $0.14. The company surpassed the revenue estimates in each of the trailing four quarters.
The stock increased 124.3% over the past nine months to close the last trading session at $24. It gained marginally intraday.
FSTR’s optimistic fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
FSTR has a B grade for Growth and Quality. Within the same industry, it is ranked first.
Click here for FSTR’s additional Value, Momentum, Stability, and Sentiment ratings.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
WAB shares were trading at $134.28 per share on Monday morning, up $0.32 (+0.24%). Year-to-date, WAB has gained 5.82%, versus a 5.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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