Which Railroad Stocks Have the Strongest Earnings Trends?

Earnings trends are extremely important when evaluating stocks. At Wall St. Cheat Sheet, we view increasing earnings quarter-over-quarter as a simple way to gauge whether costs and the business model are stable. Then we like to analyze whether the company is outperforming peers in the sector. This is what we call the “E-Squared” investment analysis (‘E = Earnings Are Increasing Quarter-Over-Quarter’ + ‘E = Excellent Relative Performance Versus Peers and Sector’).

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Here’s your Cheat Sheet to how the top 5 railroad stocks rank via earnings trends:

Kansas City Southern (NYSE:KSU): Current Price $92.42

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 1,852 1,480 1,815 2,098 2,239
Diluted EPS ($) 0.60 0.60 1.67 3.00 3.43

These are impressive annual numbers from Kansas City Southern. Both revenue and EPS hit the purple patch in 2010 and later.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 530.30 547.50 545.30 577.40 568.40
Diluted EPS ($) 0.87 0.68 1.09 0.82 0.83

The quarterly performance, however, has been somewhat mixed, with sales growth coming in fits and starts. EPS too is under pressure after the June 2000 quarter. Let’s look further…

CSX Corp. (NYSE:CSX): Current Price $21.98

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 11,260 9,041 10,640 11,740 11,760
Diluted EPS ($) 1.107 0.96 1.35 1.67 1.79

Both revenue and EPS have grown over the last three years at CSX.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 2,951 2,966 3,012 2,894 2,884
Diluted EPS ($) 0.43 0.43 0.49 0.44 0.43

But the company seems to have lost its path over the last two quarters. Both revenue growth and EPS have turned down. This one goes off the list…

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Norfolk Southern Corp. (NYSE:NSC): Current Price $69.07

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 10,660 7,969 9,516 11,170 11,040
Diluted EPS ($) 4.52 2.76 4.00 5.45 5.37

Norfolk achieved a sharp turnaround in 2010 with both revenue and EPS growing in 2011 and 2012. We must say, however, that 2012 seems to have gone a bit slowly.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 2,797 2,789 2,874 2,693 2,684
Diluted EPS ($) 1.40 1.23 1.60 1.24 1.30

After peaking in the June 2012 quarter, revenue was lower in the next two quarters. EPS too seems to have boarded the slow train…

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Union Pacific (NYSE:UNP): Current Price $131.75

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 17,970 14,140 16,960 19,560 20,930
Diluted EPS ($) 4.53 3.74 5.53 6.72 8.27

Union Pacific has really taken matters in hand after 2009. Revenue is up 48% in 2012 compared to 2009, while EPS has more than doubled in that period.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 5,108 5,112 5,221 5,343 5,250
Diluted EPS ($) 1.99 1.79 2.10 2.19 2.19

The quarterly results are a bit muted, with revenue growth mixed and only marginal improvement in EPS. We’ll have to keep looking…

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Canadian Pacific Railway Limited (NYSE:CP): Current Price $114.59

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 4,406 4,655 3,788 4,837 5,239
Diluted EPS ($) 6.08 3.76 3.67 3.86 3.30

Revenues have grown nicely during 2010 and 2011, though EPS fell off in 2011 and was the lowest reported in the five years we analyzed.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 1,342 1,390 1,388 1,342 1,467
Diluted EPS ($) 1.10 1.28 0.83 0.59 1.31

Quarterly revenue at Canadian Pacific was chugging along mostly flat until June 2012, with EPS falling steadily. But revenue and EPS switched to the fast track in the September 2012 quarter.

Conclusion

Our candidate of choice in this “E-Squared” investment analysis is Union Pacific. This decision is due to its solid annual performance and steady quarterly results, which have likely set the bar for even better results in the near future.

“E = Earnings Are Increasing Quarter-Over-Quarter” is a core component of our successful CHEAT SHEET investing framework. Don’t waste another minute – click here to discover our CHEAT SHEET stock picks now!