
What Sticks, What Doesn’t
A Class I railroad delivers Total Shareholder Returns (TSR) of 13.5%-14.5% assuming a stable stock market. The assumptions are 3.5%-4% price increases, 2% volume increase tied to GNP growth and expense increases held to 3% or below. With these assumptions, EPS grows by 10-10.5%, a dividend adds 1.3%, and buybacks add another 2.5% or more because of their effect on EPS. The railroad’s stock sells at a P/E of 20+. Everyone is happy, and rightfully so.