Listed railroads are quality businesses that should play an integral part of any listed infrastructure portfolio. The stocks have historically delivered solid returns, but the performance has been disappointing over the past three years due to operational challenges during the COVID-19 pandemic.
A significant increase in port congestion in 2021 led to deteriorating service metrics. Rail companies had to increase headcount to restore adequate service metrics at a time when volumes were under pressure from a weakening freight market. These headwinds, combined with rising costs, led to a decline in operating profitability, which translated into muted EPS growth for most rails, and disappointing shareholder returns. With these issues largely behind them, railroads are positioned for solid earnings growth and to deliver long-term value for investors.
Several characteristics make class I railroads — the largest freight carriers in North America, as defined by the Surface T
