The COVID-19 pandemic knocked volumes shipped, but the companies were able to offset some of that impact by raising prices. That may not be enough to sustain profit growth anymore, analysts say.

"The key to the rails' show-me story remains volume growth, since revenues must carry the load as more than a decade of profit growth led by pricing and PSR (Precision Scheduled Railroading) reaches maturity," Susquehanna Financial Group analyst Bascome Majors said.

Still, analysts see light at the end of the tunnel. Volumes are widely expected to pick up this year, with the bulk of the growth in the second half.

"We expect volume growth to reaccelerate in H2/22, as supply-chain performance and semiconductor supply improve, a new Canadian grain harvest approaches, and the prior-year comparables become easy again," brokerage TD Securities said.

(Graphic: Railway stock performance, https://fingfx.thomsonreuters.com/gfx/buzz/zgvomaddrvd/MicrosoftTeams-image%20(7).png)

THE CONTEXT

With the highly-infectious Omicron variant potentially delaying a recovery in global supply chains, investors will be closely watching commentary from Class I railroads when Union Pacific Corp kicks off earnings on Thursday.

Canadian National Railway Co, Canadian Pacific Railway Ltd and Norfolk Southern Corp are scheduled to report next week.

The focus will be on intermodal freight and automotive shipments, high-margin businesses that suffered in 2021 due to the global chip shortage and logjams at ports.


Graphic: Union Pacific, Canadian National: Revenue in the past three qtrs,

THE FUNDAMENTALS

** Union Pacific is set to report fourth-quarter revenue of $5.61 billion on Jan. 20 and a profit of $2.64 per share, according to Refinitiv data. In the year-ago quarter, the company posted a profit of $2.05 per share.

** Canadian National is expected to report a fourth-quarter revenue of C$3.7 billion ($2.96 billion) on Jan. 25 and a profit of C$1.55 per share, compared to a profit of C$1.43 per share a year earlier.

WALL STREET SENTIMENT

** The current average analyst rating on Union Pacific shares is "buy", with six analysts rating it "hold", and 24 "buy" or higher. Wall Street's current median 12-month price target is $270.00

** The current average analyst rating on Canadian National shares is "hold", with 16 analysts rating it "hold", and six "buy" or higher. Wall Street's current median 12-month price target is C$159.50

($1 = 1.2509 Canadian dollars)

(Reporting by Nathan Gomes in Bengaluru; Additional reporting by Shivansh Tiwary; Editing by Sriraj Kalluvila)

By Abhijith Ganapavaram and Nathan Gomes