3 Railroad Stocks to Buy From the Prospering Industry

The Zacks Transportation - Railindustry faces challenges, ranging from tariff-induced economic uncertainties, inflationary pressures and resultant high interest rates to concerns pertaining to supply-chain disruptions. High fuel costs, due to the ongoing conflict in the Middle East, have been hurting the bottom-line growth of industry players.

Despite the challenges surrounding the industry, Union Pacific Corporation UNP, CSX Corporation CSX and Norfolk Southern Corporation NSC appear better placed to tide over the challenges.

Industry Description

The Zacks Transportation - Rail industry includes railroad operators transporting freight (such as agricultural products, industrial products, coal, intermodal, automotive, consumer products, metals and minerals), primarily across North America. These companies focus on providing logistics and supply-chain expertise services. While freight constitutes a significant chunk of revenues, some of these companies also derive a small portion of their top line from other rail-related services, including third-party railcar and locomotive repairs, routine land sales and container sales, among others. A few companies offer services to multiple production and distribution facilities. Besides locomotives, some of these companies own equipment of leased locomotives, railcars, etc.

Factors Deciding the Industry's Outlook

Strong Financial Returns for Shareholders:With economic activities gaining pace from the pandemic lows, more and more companies are allocating their increasing cash pile through dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and confidence in the business. Among the Transportation – Railroad industry players, CSX's board of directorsapproved a dividend hike of 7.6%, thereby raising its quarterly cash dividend to 14 cents per share (56 cents annualized) from 13 cents (52 cents annualized) in February 2026.

Surge in Fuel Costs: A Bane: With the United States and Iran pausing military strikes, oil prices have started to drop from the highs touched following the recent attacks by Iran and the Houthi militant group and subsequent retaliation by the United States. However, oil prices surged almost 36% from the beginning of 2026 to date. As fuel expenses represent a key input cost for any transportation player, a rise in oil prices does not bode well for the bottom-line growth of railroad stocks.

Economic Uncertainty Remains: Tariff tensions have led to escalated trade woes across the globe. These tariff-induced economic uncertainties do not bode well for industry participants. With inflation remaining a concern, risks associated with an economic slowdown and geopolitical tensions dampen the prospects of stocks belonging to this industrial cohort. Sluggish economic growth and inflationary woes are likely to make markets more volatile in the coming days. Ongoing economic uncertainty does not bode well for industry players. Tariff-induced economic uncertainties and trade tensions may create uncertainty for investors interested in the industry. 

Zacks Industry Rank Indicates Encouraging Prospects

The Zacks Transportation Railroad industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #63. This rank places it in the top 26% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that investors can buy, given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.

Industry Outperforms S&P 500 & Sector

The Zacks Transportation - Rail industry has outperformed the Zacks S&P 500 Composite as well as the broader sector over the past year.

Over this period, the industry has gained 31.8% compared with the S&P 500 Index’s northward movement of 26.5%. The broader sector has surged 24.1%.

One-Year Price Performance

Industry's Current Valuation

Based on the trailing 12-month price-to-book (P/B), a commonly used multiple for valuing railroad stocks, the industry is currently trading at 7.30X compared with the S&P 500’s 7.38X. It is above the sector’s P/B ratio of 4.19X.

Over the past five years, the industry has traded as high as 10.92X, as low as 5.40X and at the median of 6.91X.

3 Stocks to Keep an Eye On

We are presenting three Zacks Rank #2 (Buy) stocks that are well-positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Union Pacific: Headquartered in Omaha, NE, Union Pacific, through its subsidiary, Union Pacific Railroad Company, operates in the railroad business in the United States.

Relatively stable e-commerce demand, cost-cutting efforts to boost the bottom line and consistent initiatives to reward its shareholders through dividend payments and share repurchases bode well for UNP’s prospects. Further, UNP has a solid track record with respect to earnings surprises. The company surpassed the Zacks Consensus Estimate in three of the past four quarters (missed the mark in the remaining quarter), with an average beat of 2.75%.

The Zacks Consensus Estimate for UNP’s 2026 earnings has moved up 2.9% over the past 60 days. UNP’s expected earnings growth rate for 2026 is 10.63%.

Price and Consensus: UNP

CSX: Based in Jacksonville, FL, CSX offers rail-based freight transportation services like traditional rail service, transport of intermodal containers and trailers and rail-to-truck transfers.

CSX's consistent efforts to continue rewarding its shareholders by paying dividends and buying back shares look encouraging. The company's focus onimproving workplace safety for employees is commendable. For 2026, CSX now expects mid-to high single-digit revenue growth (including fuel, based on the current forward curve for diesel) compared with its prior guidance of mid-single-digit revenue growth. Operating margin expansion is now anticipated to exceed 350 basis points compared with the previous expectation of around the higher end of the 200-300 basis points range. Free cash flow is now anticipated to increase more than 80% compared with the prior expectation of growth of more than 60%.

CSX has a solid earnings surprise history. The company surpassed the Zacks Consensus Estimate in three of the past four quarters (missed the mark in the remaining quarter), with an average beat of 3.97%. The Zacks Consensus Estimate for CSX's 2026 earnings has moved up 5.2% over the past 60 days. CSX has an expected earnings growth rate of 24.22% for 2026.

Price and Consensus: CSX

Norfolk Southern: Headquartered in Atlanta, GA, Norfolk Southern engages in the rail transportation of raw materials, intermediate products, and finished goods in the United States.

E-commerce continues to support long-term intermodal demand for Norfolk Southern, even as near-term volume trends remain uneven. The company is leaning on Precision Scheduled Railroading to tighten execution and sustain a lower cost structure, while its decarbonization agenda and customer tools reinforce rail’s value proposition. Liquidity remains adequate to fund the network and a steady dividend.

NSC has a solid earnings surprise history. The company surpassed the Zacks Consensus Estimate in each of the past four quarters, with an average beat of 8.54%. The Zacks Consensus Estimate for NSC's 2026 earnings has moved up 3.9% over the past 60 days. NSC has an expected earnings growth rate of 0.88% for 2026.

Price and Consensus: NSC

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This article originally published on Zacks Investment Research (zacks.com).

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