By January 2016, some investors believed that the final nail had been hammered into the coffin of the American coal industry, but then something surprising happened.
ADVERTISEMENT
Coal isn't dead yet and the railroads are loving it
Coal prices are up and it is benefitting the rail roads.
null
ADVERTISEMENT
Recommended articles
In a recent note, UBS reported the decline in coal's importance to railroads when production was lower:
"In 2011, coal made up ~31% of revenue for CSX corp. and NSC (Norfolk Southern) and ~21% of revenue for UNP (Union Pacific). As shown in Figure 1, below, coal fell to ~12% of revenue for UNP, ~17% of revenue for CSX, and ~15% of revenue for NSC in 2016."
But now, with coal making a comeback, as well as other economic developments, UBS is more optimistic about rail:
ADVERTISEMENT
"We have a broadly positive view on the railroad stocks based on our expectation of favorable cyclical improvement in rail volumes in 2017, stronger pricing in 2018, and the potential for boosts to EPS and free cash flow if US tax reform is enacted."
The bank's favorite rail stocks are CSX and NSC, in part because of their exposure to coal.
FOLLOW BUSINESS INSIDER AFRICA
ADVERTISEMENT
Recommended articles
Edward Howarth of DashTickets talks about gambling in Africa
Eco-friendly gambling: The impact of online slots on sustainability
Chad to become the first of Africa's current junta-led states to move to democracy
Russia spreads its military influence to another African country
A look into South Korea’s rice gift to Africa
FBNBank Ghana changes to FirstBank Ghana to align with group identity
Nigeria restricts power export to neighbouring countries to meet domestic demand
NOG Energy Week 2024: West African countries harnessing gas for industrialisation to boost economic development