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TheStreet Open House

Railroad Stocks, Hurt by Coal, to Make a Comeback

5. Canadian National (CNI)

Company profile: Canadian National, with a market value of $38 billion, spans Canada from coast to coast and extends through Chicago to the Gulf of Mexico over 20,000 miles of track.

Dividend Yield: 1.78%

Investor takeaway: Its shares are up 10.2% this year and have a three-year, average annual return of 29%. Analysts give its shares one "buy/hold" rating, 12 "holds," two "weak holds," and one "sell," according to a survey of analysts by S&P. Analysts estimate it will earn $5.41 per share this year and $5.93 next, which is 10% earnings growth.

Morningstar analysts are bullish on the company, saying: "Canadian National generates the highest margins of any railroad in North America, and we don't see this changing soon."

And on Monday, investor activist and hedge fund manager Bill Ackman, who is waging a proxy battle to install a new chief executive at the company, said in an interview on CNBC that the railway's stock should double over the next three years given changes in management he is seeking.

4. Kansas City Southern (KSU)

Company profile: KSU, with a market value of $9 billion, is a holding company and owns over 6,000 miles of track and serves the central and south-central U.S., along with parts of Mexico and Panama.

Dividend Yield: 1%

Investor takeaway: Its shares are up 14% this year and have a three-year, average annual return of 71%. Analysts give its shares seven "buy" ratings, five "buy/holds," and eight "holds," according to a survey of analysts by S&P. Those same analysts estimate it will earn $3.47 per share this year and grow by 21% to $4.19 per share in 2013.

3. Norfolk Southern (NSC)

Company profile: Norfolk Southern, with a market value of $24 billion, operates 21,000 miles of track in the eastern U.S. Its revenue sources are roughly 31% coal, 19% intermodal traffic, with the balance made up of automobile, agriculture, metal, chemical and forest products.

Dividend Yield: 2.55%

Investor takeaway: Its shares are up 2.5% this year and have a three-year, average annual return of 30%. Analysts give its shares nine "buy" ratings, eight "buy/holds," nine "holds," and one "weak hold," according to a survey of analysts by S&P. Analysts estimate it will earn $5.84 per share this year and grow by 12% in 2013, to $6.55 per share.

S&P has it rated "buy" with an $85, 12-month price target, a 16% premium to its current price. Sterne Agee has a "buy" rating and an $84 price target.

2. Union Pacific (UNP)

Company profile: Union Pacific, with a market value of $55 billion, is the largest public railroad in North America, operating on 32,000 miles of track, primarily in the Western U.S.

Dividend Yield: 2.09%

Investor takeaway: Its shares are up 9.2% this year and have a three-year, average annual return of 34%. Analysts give its shares 12 "buy" ratings, 11 "buy/holds," and four "holds," according to a survey of analysts by S&P. Those same analysts estimate it will earn $8.10 per share this year, and that will rise by 14% to $9.25 per share in 2013.

1. CSX (CSX)

Company profile: CSX, with a market value of $24 billion, operates primarily in the eastern U.S. Its traffic includes a heavy weighting to coal at 32% of revenue, followed by chemicals (14%) and intermodal traffic (12%). CSX is one of the nation's largest coast-to-coast intermodal transportation providers.

Dividend Yield: 2.13%

Investor takeaway: Its shares are up 7.6% this year and have a three-year, average annual return of 32%. Analysts give its shares 12 "buy" ratings, nine "buy/holds," five "holds," and one "weak hold," according to a survey of analysts by S&P. S&P has it "buy" rated with a $27 price target, a 20% premium to the current price.

Deutsche Bank has the company rated "buy," and says that while "utility coal tonnage was particularly weak" at down 28% year-over-year, it offset some of the decline with 17% growth in export coal tonnage and 33% growth in coke and iron ore tonnage as well as on pricing gains and tight cost controls. In the first quarter its earnings were up 14% despite lower coal shipments.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
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