Coal Revival: A Blessing For Railroads

Stocks in the railroad space are psyched up after years of struggle. The main reason for the struggles of the sector was weakness in domestic coal shipments. However, things are looking up now for this a key revenue-generating commodity for railroad operators. 

Coal Prospects Brighten in the Trump Era

It is a well-documented fact that coal as a fuel source lost much of its relevance during President Obama’s tenure. However, the election of President Trump late last year has been a blessing for this industry, which is a vital source of employment in the country. The President is in favor of increasing employment in this industry apart from relaxing regulations. As coal accounts for more than 15% of revenues for railroads in the U.S., it is natural that any bullish development pertaining to the commodity is a boon for railroads.

Trump’s repeated emphasis on the need to revive the coal industry bodes well for the railroad industry. He is a bigger fan of fossil fuels compared to renewable energy, and has started to act on his pre-election promises and taken measures to repeal the Clean Power Plan. Trump also walked out of the Paris Climate Agreement. Both have similar objectives of lowering emission levels.

Given this backdrop, we expect a surge in the usage of coal during the Trump regime. Naturally, sector participants like Union Pacific Corp. (UNP - Free Report) , Norfolk Southern Corp. (NSC - Free Report) and CSX Corp. (CSX - Free Report) stand to benefit substantially if the President successfully resurrects the coal industry.

Union Pacific carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

An improving economy also means good news for railroads as it implies that an increased volume of goods are crossing the country on the rails. Additionally, coal volumes will be positively impacted in the event of higher industrial production. The bullishness surrounding railroad operators is clear from the 10.61% year-to-date increase witnessed in the Dow Jones U.S. Railroads Index.

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