At Cowen and Company, we are adjusting our rail models in advance of second-quarter earnings reports due later this month from the Class I railroads. The models reflect carloads in the quarter, mix, fuel, FX (foreign exchange) and cost implications as the supply chain remains tight.
Author: Jason Seidl
Following the closing of the public comment period for the CN voting trust, which ended June 28, we are re-calibrating our expectations and now believe there to be a ~60% chance the Surface Transportation Board approves it. Our viewpoints swayed slightly in favor of CN following a closer look at the public comments over the past 20 days.
Trends across the rail industry appear positive, although ongoing congestion is an issue for inland ramps, according to leaders at our recent “Suds with Seidl” event.
On May 19, we hosted a call with a noted transportation attorney to discuss the latest news surrounding the proposed merger involving KSU/CP/CNI. The STB decision on May 17 indicates more caution surrounding voting trusts; CNI must show that the trust keeps a level playing field. The key for CNI will be that public benefits outweigh harms.
At Cowen and Company, we are updating our rail models to reflect carload data and costs associated with severe weather and fuel in the first quarter.
Rail industry leaders were bullish on the quarter-to-date at the latest “Suds with Seidl” event, with one panelist citing a spring surcharge for containers, underlying the strong rate backdrop for carriers.
We hosted rail industry experts in our third Suds with Seidl event. The overall mood was optimistic. The outlook for 2021 was strong, with one participant noting he was surprised to hear just how bullish his customers were this past week. Class I’s may be missing business opportunities, but there is still hope for greater communication via technology initiatives. We remain positive on the rail group.
Since March we have been very cautious on the near-term prospects for the railroad stocks, warning investors on multiple occasions about the disappointing volume outlook for the group. These warnings have proven timely as the group has fallen 9% in 2Q 2015 and 14% year to date. Earnings expectations have been coming in, but the big question in the minds of investors has been if/when to put more money to work in the railroads. We believe the group is still a good long-term spot for investors to park their money but acknowledge that timing will be imperative in order to maximize returns.