Railroad Stocks Calm in Face of Strike

NEW YORK ( TheStreet) -- Railroad stocks have remained calm even as the industry's labor situation moves closer to potential upheaval with each passing day.

The country's operators of Class I railroads remain in talks with three rail unions, who could opt to go on strike once a "cooling period" between the two parties ends at midnight on Dec. 6. The risk of a strike is mitigated however by a provision in the U.S. Constitution that could block any work stoppage.

The "Commerce Clause," or Article I, Section 8, Clause 3 of the Constitution says that Congress has the enumerated power "To regulate Commerce ... among the several States," and Congress can invoke that clause to prevent the strike and save the country from losing an estimated $2 billion a day.
Congress can intervene in the railroad-union labor dispute

"A shutdown of our nation's railways, which would harm our economy and endanger many American jobs, is unacceptable," House Speaker John Boehner (R., Ohio) said in a statement Tuesday. "The House is prepared to take legislative action in the days ahead to avert a job-destroying shutdown of our nation's railroads, in the event such legislation proves necessary."

The railroad stocks moved modestly on Thursday with the biggest gainer of the day being Kansas City Southern ( KSU), which closed at 68.77, up 74 cents, or 1.1%. The sector's biggest laggard was Norfolk Southern ( NSC), which closed at $74.78, down 76 cents, or 1%.

One railroad analyst, who spoke on the condition of anonymity, said that a rail stoppage is possible, but didn't think it would affect rail stocks in the long term.

"It would probably dip, but it wouldn't change the long-term thesis in rail. ... I would generally think that they rail stocks would get beat up -- frankly, the market could probably get beat up on it, because it is an economic issue," the analyst said.

President Barack Obama established on Nov. 5 a Presidential Emergency Board to issue recommendations for the parties involved to reach a labor agreement. As of Thursday, 10 of the 13 major rail unions have reached agreements with the railroads.

The three that remain -- Brotherhood of Locomotive Engineers and Trainmen, the American Train Dispatchers Association and the Brotherhood of Maintenance of Way Employees -- make up 40% of the 132,000 employees in the current round of bargaining, according to the National Railway Labor Conference.

"During the busiest shipping and travel period of the year, a nationwide disruption of rail service would deal a crushing blow to our nation's economy, potentially costing our country $2 billion a day," A. Kenneth Gradia, the railroads' bargaining representative, said in a statement.

Although there's still a possibility of some 52,800 union employees striking, the market appears to be confident that a deal will be reached.

The remaining Class I public stocks were relatively flat on Thursday: CSX ( CSX) closed at $21.73, up 2 cents, or 0.1%; Union Pacific ( UNP) was at $102.93, down 48 cents, or 0.5%; Canadian National ( CNI) slid to $77.27, down 29 cents, or 0.4%; Canadian Pacific ( CP) finished at $60.29, up 11 cents, or 0.2%.

"The stocks are telling you that nothing's going to happen," a rail analyst said.

-- Written by Joe Deaux in New York.

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