Zacks Industry Outlook Highlights: Union Pacific Corp., CSX Corporation, Norfolk Southern Corp., Canadian National Railway

   Zacks Industry Outlook Highlights: Union Pacific Corp., CSX Corporation,
 Norfolk Southern Corp., Canadian National Railway Company, Canadian Pacific
                       Railway and Kansas City Southern

PR Newswire

CHICAGO, Jan. 14, 2013

CHICAGO, Jan. 14, 2013 /PRNewswire/ -- Today, Zacks Equity Research discusses
the U.S. Machinery, including Union Pacific Corp. (UNP), CSX Corporation
(CSX), Norfolk Southern Corp. (NSC), Canadian National Railway Company (CNI),
Canadian Pacific Railway (CP) and Kansas City Southern (KSU)


Industry: Railroads


The vast expanse of the U.S. is covered by over 600 freight railroads
comprising Class I, regional railroads and local line haul operators. These
railroads operate across 150,000 miles of railroad tracks and generate over
$50 billion in annual freight revenues.

Based on their operating revenues, freight railroads are categorized into
three segments: Class I with annual operating revenues above $346 million,
Class II with revenues in the range of approximately $27.8 million to $346
million, and Class III for the rest. Operating revenue based classification
standards are provided by the Surface Transportation Board (STB). However, in
the light of inflation and the changing macroeconomic environment, revenue
benchmarks are subject to alteration.

Currently, there are 9 major railroads in America that are classified under
Class I freight railroads. These include Union Pacific Corporation (UNP), CSX
Corporation (CSX), Norfolk Southern Corp. (NSC), Canadian National Railway
Company (CNI), Canadian Pacific Railway (CP), BNSF Railway, Kansas City
Southern (KSU), Ferromex and Kansas City Southern de México (wholly owned
subsidiary of Kansas City Southern Railway).

These carriers can be further categorized on the basis of their network of
operations. BNSF Railway, Canadian National, Canadian Pacific, CSX Corp. and
Norfolk Southern have their presence in the U.S. as well as the Canadian
Market. Union Pacific operates only in the U.S. with no footprint in Canada or
Mexico. It represents the largest freight railroad and operates predominantly
in the western part of the U.S. Kansas City Southern Railway operates between
U.S. and Mexico, Kansas City Southern de México and Ferromex cater only to the
Mexican market.

Although these Class I carriers represent only 1% of the total freight
railroads in America, these control more than 90% of freight revenues and
employment generated in the industry. Consequently, Class I carriers are good
indicators of the performance of the rail industry and are crucial when
analyzing railroad trends.

The Track Ahead

The year 2013 depicts a mixed picture for the railroads. The U.S. GDP forecast
for 2013 is also not very encouraging due to the macroeconomic environment.
Going by the latest reports, the growth rate for 2013 is expected to hover
around 1.5% to 2%. Uncertainties over the fiscal cliff and perpetuating
impacts of the impending tax increases would likely weigh over the country's
economic growth, pulling it down from the 2012 level. Thus, the impacts on
railroads will not be any different from the other sectors.

However, railroads do have certain windows of opportunity, which can be banked
upon. The key among these is the rise in intermodal alongside petroleum and
automotive shipments.

Zacks Industry Rank

The Zacks Industry Rank, which derives its predictive power from the
time-tested Zacks Rank, helps us identify the industries that are expected
outperform others. The top 1/3rd of the Zacks Industry Rank qualify as
industries with 'Good' prospects, the bottom 1/3rd have 'Bad' prospects, and
middle 1/3rd as 'Neutral.' Most of the constituent 'industries' in the
business services sector fall in the top 1/3rd of the list.

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