Surface Transportation

We are generally positive on Railroads even after the year end run.  We launched on the group in mid-October with a neutral to cautious view, grounded in stabilizing yet still subdued volume, uncertain pricing trends and full valuations even considering improving cash profiles.  We pivoted to a more constructive position following the recent election results, which we think provides a backdrop, over time, for modestly better volumes, stronger pricing, less onerous regulation and the potential for a large boost from tax and capital expenditure policies.  Certainly, risks still linger, largely in the form of a stronger dollar, possible trade protectionism and rising interest rates, but on balance, we think Railroad fundamentals are well positioned within today’s economic and political backdrop.  Valuations appear healthy on earnings today, but not too onerous on a relative basis, and less expensive on cash.  If Republican tax and capex treatment proposals are put in place, the group will look much more reasonable on earnings, and cheap on cash. 

Top Picks:

  • Canadian Pacific Railway Limited (CP-CA)
  • Union Pacific Corporation (UNP)
  • CSX Corporation (CSX)

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Brian Konigsberg
Vice President

Anthony (TJ) J. Toro