(The Associated Press circulated the following on May 28.)
NEW YORK, NY – Railroad stocks rose Tuesday, as the broader market edged higher and a Stifel Nicolaus analyst predicted the group could produce “stellar” earnings growth over the next several years as some recent hurdles ease.
Analyst John G. Larkin said the group has performed better than expected amid a weakening U.S. economy, soaring fuel prices and harsh weather in the last several quarters. Larkin said that when these factors improve and interest rate cuts begin to take effect, the railroad operating environment “has the potential to improve dramatically over the coming months and years.”
The only hurdle Larkin sees is the potential for economic reregulation, which the analyst notes might handicap the segment’s growth.
Larkin said he believes the outlook for North American railroads hasn’t been this strong since the transcontinental railroad was formed in 1869. He suggests that the sector’s potential will be played out as rails begin to be viewed as a fuel efficient and environmentally friendly alternative to trucks. Also, he notes the sector will continue to benefit from booming demand for commodities and ongoing productivity improvements.
His top picks in the sector include Norfolk Southern Corp. (nyse: NSC – news – people ) and Canadian National Railway Co. (nyse: CNI – news – people ), which he rates at “Buy.”
Here’s how some stocks in the sector closed Tuesday:
Norfolk Southern rose $1.17 to $63.91.
Canadian National Railway Co. up 22 cents to $55.52.
Union Pacific Corp. (nyse: UNP – news – people ) up $5.74, or 3.8 percent, to $157.90.
Burlington Northern Santa Fe Corp. (nyse: BNI – news – people ) rose $2.33, or 2.2 percent, to
$108.47.
CSX Corp. (nyse: CSX – news – people ) gained 66 cents to $67.39.
Canadian Pacific Railway Ltd. rose 25 cents to $71.55.
Kansas City Southern (nyse: KSU – news – people ) rose $1.57, or 3.4 percent, to $47.88.