Increased domestic demand and expansion driving revenue
Demand of utility coal is increasing in the U.S. domestic market. The Illinois Basin reported an increased demand of coal for domestic use. The utility coal from Illinois Basin is priced around $3.5 per million British thermal units, or MMBtu. The increased demand of utility coal is a result of higher natural-gas prices, in the range of $4 to $5 per MMBtu. This trend will be beneficial for CSX Corporation (NYSE:CSX), which is one of the major railroad carriers in this region.
It reported an increase in its Illinois Basin coal carloads, for domestic use, from 12% in 2010 to 28% in the first quarter of 2013. CSX Corporation (NYSE:CSX) has seen a significant shift in demand for its utilities to Illinois Basin coal from Central Appalachian coal, as Illinois Basin acts as a source of low-cost utility coal.
Demand for domestic coal will further increase due to high natural-gas prices and weather conditions. The total coal consumption in the U.S. is forecast to increase from 890 million short tons, or MMst, in 2012, to 954 MMst in 2013. The company anticipates an increase in its domestic coal shipments, as Illinois Basin miners are willing to ship more of their low-cost coal.
CSX Corporation (NYSE:CSX) began construction of its Quebec Intermodal terminal in March. This new terminal will connect the Montreal region and Quebec with CSX’s 21,000 mile rail network in the U.S. The terminal is expected to be operational by 2015. CSX Corporation (NYSE:CSX) will spend $107 million on this project in order to tap business opportunities from shippers in Montreal and Quebec City. The shippers, through this terminal, will have quick and efficient access to markets across the U.S. The terminal will be able to handle up to 100,000 containers per year. With this expansion, CSX Corporation (NYSE:CSX) has huge potential to acquire a good market share in intermodal business.
Conclusion:
Wide rail networks in the major oil fields of Bakken and Eagle Ford shale formations will increase Union Pacific Corporation (NYSE:UNP)‘s revenue in 2013. The company will also re-price its legacy contracts, which will increase revenue in long term, through 2016. I recommend buying this stock.
Canadian National Railway (USA) (NYSE:CNI), one of the largest carriers of forest products in North America, will generate additional revenue in 2013 because of high demand for lumber in China and the U.S. Also, by increasing the capacity and adding new route in the Edmonton-Winnipeg corridor, the company aims to increase its revenue in 2014. I recommend buying this stock.
CSX Corporation (NYSE:CSX) will ship more coal from Illinois basin due to increased demand from its utilities. This will generate more revenue in 2013. With new intermodal terminal, the company has huge potential to drive its revenue higher from 2015. I recommend buying this stock.
The article Why These Rail Companies Offer a Rewarding Ride originally appeared on Fool.com and is written by Madhu Dube.
Madhu Dube has no position in any stocks mentioned. The Motley Fool recommends Canadian National Railway. Madhu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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