Zacks Industry Outlook Highlights: Union Pacific, Kansas City, Norfolk Southern and Canadian National Railway

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Feb 03, 2011, 09:30 ET

CHICAGO, Feb. 3, 2011 /PRNewswire/ -- Today, Zacks Equity Research discusses the Railroad Industry, including: Union Pacific Corp. (NYSE: UNP), Kansas City Southern (NYSE: KSU), CSX Corp. (NYSE: CSX), Norfolk Southern Corp. (NYSE: NSC) and Canadian National Railway Co. (NYSE: CNI).

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A synopsis of today's Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/46995/Railroad+Industry+Outlook+-+Feb.+2011

The railroad industry as a whole offers a number of attributes that are difficult to ignore from the standpoint of investors.

Discretionary Pricing Power: The freight railroad operators function in a seller's market enjoying pricing power since 1980 when the U.S. government adopted the Staggers Rail Act. The idea was to allow rail transporters to hike price on captive shippers like electric utilities, chemical and agricultural companies, in order to improve profitability of the struggling railroad industry. Because of the Staggers Rail Act, the railroads are hiking freight rates on average by nearly 5% and maintaining double-digit profit margins.

Competitive Advantage: From the customers' point of view, rail transport is cheaper and fuel-efficient than truck and ship transport. As a result, railroads are gaining market share from other means of transport. Several truck operators went bankrupt during the peak recessionary period that helped railroads become default freight transporters for mid-to-long distances.

Technical Superiority: Overall, investment by railroad operators for product and service improvement is far ahead than other transportation industries. Investments in capacity, innovations and use of several state-of-the-art technologies led to service improvements and enhanced reliability. AAR claims that freight rail transporters together invested a significant amount of $42 billion in the previous two years for railroad track expansion and maintenance.

Currently, we remain Neutral on Union Pacific Corp. (NYSE: UNP), Kansas City Southern (NYSE: KSU), CSX Corp. (NYSE: CSX), Norfolk Southern Corp. (NYSE: NSC) and Canadian National Railway Co. (NYSE: CNI). However, due to strong growth momentum of the industry, our long-term view remains positive for all these Class 1 freight railroad operators.

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