Tag Archive for investing in railroads

Excellant due diligence analysis of changing rail values as companies by William Greenfield

This Is pretty thought provoking from an economics view of how railway operating companies can be valued as by investors in these changing times.

The logic is written by William Greenfield . Remember. This is just one benchmark approach.

WHY ARE most profitable railroad railroad company stocks down in mid year 2015 so far? Mr Greenfield points out that Railroads are in the transportation industry and for the last 15-20 years they have enjoyed one major advantage over all other forms of transportation – expensive oil. Other forms of land transportation, such as trucking, use more oil per ton-mile then a train. Therefore, when setting up a supply chain for distribution, an enterprise was willing to look at rails even though they aren’t the fastest or the most convenient (the train can’t go where the tracks aren’t laid).

Once you understand this connection he argues that you begin to see that railroads benefit from high oil prices. The senior railroad company managers know this.

He points to the commercials from rail companies like CSX Transportation (NYSE:CSX) that tell the listener how a train uses only 1 gallon of fuel to move 1 ton of goods over 480 miles.

While these commercials are telling you how great trains are for the environment relative to, say, trucks, they are also telling you their greatest economical advantage – not having to pay for a lot oil.

This of course also tells us that their greatest weakness. The weakness is cheap oil.

Due Diligence as an investor in rail companies.

In order to really get an idea of what we can expect from NSC, and really from any railroad going forward, Greenfield argues that we need to go back to a time when oil was last at ~$50/barrel (or lower) after adjusting for inflation.

Check the Seeking Alpha web site for his historical chart to see the detailed logic as his evidence.   (WTI Inflation-Adjusted (Chart from Macrotrends)

Log onto http://m.seekingalpha.com/article/3345245-norfolk-southern-6-degrees-of-oil?app=1&auth_param=d2tlu:1aqv27c:d0ceb761aa628f5514860c9326cfc30d&uprof=44