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Key Takeaways from Genesee & Wyoming’s 4Q17 Earnings

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Part 6
Key Takeaways from Genesee & Wyoming’s 4Q17 Earnings PART 6 OF 6

How Analysts View Genesee & Wyoming after 4Q17 Earnings

Analyst recommendations

Genesee & Wyoming (GWR) has a consensus rating of 1.9, which represents a “buy.” Of the 12 analysts tracking GWR stock, five (42%) have recommended a “strong buy,” and three (25%) have recommended a “buy.” The remaining four analysts (33%) have recommended a “hold.” None of the analysts recommended a “sell.”

How Analysts View Genesee &#038; Wyoming after 4Q17 Earnings

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Analysts’ 12-month price targets

Genesee & Wyoming stock has a 12-month consensus target price of $83.25 from analysts surveyed by Thomson Reuters. Based on a closing price of $70 on February 12, 2018, that translates to a solid return potential of 18.9%. In the past year, GWR stock has returned -6.5%. Below are the analysts’ target prices and return potentials for GWR’s peers:

  • Union Pacific (UNP): $146.08 with a return potential of 13.6%
  • Kansas City Southern (KSU): $119.50 with a return potential of 13.4%
  • CSX (CSX): $63.50 with a return potential of 19.5%
  • Norfolk Southern (NSC): $158.95 with a return potential of 13.6%
  • Canadian Pacific Railway (CP): $242.66 Canadian
  • Canadian National Railway (CNI): $109.51 Canadian with a return potential of 13.1%

Investors who want exposure to transportation stocks could consider the SPDR S&P Transportation ETF (XTN), which holds 12.1% of GWR and its peer group.

Why are analysts bullish on GWR?

There are three main factors that could drive the US railroad industry, including GWR, going forward.

  • Railroads could have large free cash flows resulting from a reduction in the US corporate tax rate from 35% to 21%. For 2018, GWR expects a 25% growth in its free cash flow, amounting to $315 million. On an adjusted basis, the company’s free cash flow estimate for 2018 is $370 million.
  • There is a provision in the new Tax Cuts and Job Act that allows transportation companies to deduct their qualified capital expenditures for the current year for tax purposes. That could result in higher capital expenditures for railroads going forward.
  • GWR has successfully reduced its higher debt burden in the last year. Its adjusted debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) multiple is expected to be 2.3x at the end of 2018.

On the margin front, with all its acquisitions, GWR has curtailed growth in its operating expenses. Increased operating efficiency could drive its operating income in the coming quarters, pushing its margins higher.

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