Leading U.S. railroad, CSX Corporation (CSX) has initiated a $26 million track expansion project on River Lines between Northern N.J. and Albany, N.Y. We expect the new development project to benefit the company’s growing freight business and thereby lead to revenue accretion.
Over the coming years, the company also plans to focus on more River Line capacity expansion projects that would lead to service improvements across its network. The company last expanded capacity on River Line in 2005, and now plans to undertake a total of 18 miles of second track construction over a period of 2 to 3 years.
Given the growing importance of rail intermodal, rail infrastructural development has been at the focus of all investments undertaken by the railroads. In 2012, another major railroad, Norfolk Southern Corporation (NSC) sought expansion plans worth $2 billion within its territory.
Norfolk’s expansion strategies were fueled mostly by the development of the energy sector, including the gas exploration projects in Marcellus and Utica shale plays as well as ventures associated with coal and power generation. Over the coming years, it expects to introduce 32 energy-related projects in 14 states under it service areas.
Coming back to the recent development, besides CSX, rail freight carriers like Canadian National Railway Company (CNI) and Canadian Pacific Railway Limited (CP) have also shown significant activities in terms of terminal and capacity developments. While Canadian National collaborated with Indiana Rail Road Company to set up an intermodal terminal in Indianapolis, Canadian Pacific started operations in its latest intermodal terminal at Saskatchewan's Global Transportation Hub in Regina.
All these recent events only lead to the fact that railroads are experiencing increased growth in their intermodal services. We expect all these investments to remain accretive over the long term, supporting volume growth. However, given the current economic backdrop, these investments can likely weigh on the margins in the foreseeable future until there is a significant improvement in the market fundamentals that will drive revenues upward.
Currently, CSX Corporation has Zacks Rank# 4 (Sell) rating. Other railroad stocks –Norfolk Southern, Canadian National and Canadian Pacific – retain a Zacks Rank #3 (Hold).
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