Railroads have been enjoying a strong secular push on core pricing, and these long-term benefits are expected to continue as U.S. GDP and industrial production experience modest growth, says Christian Wetherbee, Senior Analyst in the industrials group at Citi Investment Research & Analysis.
“[Industrials] are taking business off of the road and on to the rail because fuel prices are high and the rails are more fuel efficient, their service continues to get better, pricing is very solid, so everything is working well for them right now,” he said. “The fundamentals of the railroad industry are very, very solid, so we like that group.”
Wetherbee has a “buy” rating on Union Pacific Corporation (UNP), which he says is trading below its historical average. He says stocks in the railroad group are in the neighborhood of about 12.5 times earnings multiples.
“We’re trading still about a turn below their historical averages on earnings multiples next year, and so we feel like that’s probably one of the more interesting and attractive places to put capital these days,” Wetherbee said.
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