The Zacks Transportation - Rail industry faces challenges, ranging from tariff-induced economic uncertainties, inflationary pressures and resultant high interest rates to concerns pertaining to supply-chain disruptions.
Despite the challenges surrounding the industry, Union Pacific Corporation UNP and CSX Corporation CSX appear better placed to tide over the challenges. Declining fuel costs represent a tailwind as far as bottom-line growth is concerned.
Industry Description
The Zacks Transportation - Rail industry includes railroad operators transporting freight (such as agricultural products, industrial products, coal, intermodal, automotive, consumer products, metals and minerals), primarily across North America. These companies focus on providing logistics and supply-chain expertise services. While freight constitutes a significant chunk of revenues, some of these companies also derive a small portion of their top line from other rail-related services, including third-party railcar and locomotive repairs, routine land sales and container sales, among others. A few companies offer service to multiple production and distribution facilities. Besides locomotives, some of these companies own equipment of leased locomotives, railcars, etc.
Factors Deciding the Industry's Outlook
Strong Financial Returns for Shareholders:With economic activities gaining pace from the pandemic lows, more and more companies are allocating their increasing cash pile through dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and confidence in the business. Among the Transportation – Railroad industry players, CSX announced an 8.3% increase in the quarterly dividend in February 2025, and Union Pacific approved a dividend hike of 3%, thereby raising its quarterly cash dividend to $1.38 per share ($5.52 annualized) from $1.34 ($5.36 annualized) in July 2025.
Decline in Oil Price is a Tailwind: The decline in expenses on fuel represents another tailwind for the industry. Notably, oil prices declined almost 20% from the beginning of 2025 to date. As fuel expenses represent a key input cost for any transportation player, a fall in oil prices bodes well for the bottom-line growth of railroad stocks.
Economic Uncertainty Continues With Tariff Turmoil: The current administration is focused on protectionism that restricts international trade to help domestic industries. The U.S. administration’s tariff policies are reshaping the transportation service industry by increasing costs, disrupting supply chains and influencing consumer behavior. The tariff turmoil is hurting global trade. Tariff-induced economic uncertainties and trade tensions may create uncertainty for investors interested in the industry.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Transportation Railroad industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #211. This rank places it in the bottom 13% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The sell-side analysts covering the companies in this industry have been decreasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has decreased 7.9%.
Before we present a few stocks that investors can retain, given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Lags S&P 500, Outperforms Sector
The Zacks Transportation - Rail industry has underperformed the Zacks S&P 500 Composite index while outperformed the broader sector over the past year.
Over this period, the industry has declined 8.3% against the S&P 500 Index’s northward movement of 12.9%. The broader sector has declined 15.5%.
One-Year Price Performance
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Industry's Current Valuation
Based on the trailing 12-month price-to-book (P/B), a commonly used multiple for valuing railroad stocks, the industry is currently trading at 5.82X compared with the S&P 500’s 8.19X. It is above the sector’s P/B ratio of 3.12X.
Over the past five years, the industry has traded as high as 10.92X, as low as 5.28X and at the median of 7.07X.
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2 Stocks to Keep an Eye On
We are presenting two Zacks Rank #3 (Hold) stocks that are well-positioned to grow in the near term.
Union Pacific: Headquartered in Omaha, NE, Union Pacific, through its subsidiary, Union Pacific Railroad Company, operates in the railroad business in the United States.
Relatively stable ecommerce demand, cost-cutting efforts to boost the bottom line and consistent initiatives to reward its shareholders through dividend payments and share repurchases bode well for UNP’s prospects. Further, UNP has a stellar track record with respect to earnings surprises. The company surpassed the Zacks Consensus Estimate in three of the past four quarters (missed the mark in the remaining quarter), with an average beat of 2.86%.
Price and Consensus: UNP
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CSX: Based in Jacksonville, FL, CSX offers rail-based freight transportation services like traditional rail service, transport of intermodal containers and trailers apart from rail-to-truck transfers.
For 2025, CSX still expects total volume growth. The company will continue to focus on operational excellence, labor productivity and efficiency initiatives. Capital expenditures are expected to be $2.5 billion this year, excluding hurricane rebuild spending. The company's focus on improving workplace safety for employees is commendable. CSX’s strong balance sheet enables the company to reward shareholders with dividends and share repurchases.
CSX has surpassed the Zacks Consensus Estimate in two of the past four quarters.
Price and Consensus: CSX
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5 Stocks Set to Double
Each was handpicked by a Zacks expert as the favorite stock to gain +100% or more in the months ahead. They include
Stock #1: A Disruptive Force with Notable Growth and Resilience
Stock #2: Bullish Signs Signaling to Buy the Dip
Stock #3: One of the Most Compelling Investments in the Market
Stock #4: Leader In a Red-Hot Industry Poised for Growth
Stock #5: Modern Omni-Channel Platform Coiled to Spring
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor. While not all picks can be winners, previous recommendations have soared +171%, +209% and +232%.
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CSX Corporation (CSX) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
