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OVERVIEW
There have only been a few buying opportunities for Class 1 Railroad shares over the last decade, and we think the current sell-off will be another. Rails have underperformed significantly since late 2014, with Norfolk Southern giving back nearly a decade of relative outperformance.
HIGHLIGHTS
- A Long View of The US Railroad Industry: Does industry performance have room for further gains?
- Mistaken for Commodity Plays: Volumes just haven’t grown commodity-wise in the past decade, and correlations with CRB are negative.
- Speed: Rail speeds got clobbered last year. Slower speeds pull costs onto the rails and slow revenue generation. Rails are speeding up now, and that cost/revenue should come back out.
- Valuation: Reasonable range DCF, between different railroads and relative to historical metrics