By and large, the short interest in railroad stocks rose during the first two weeks of December.
The number of shares sold short in Canadian National Railway (NYSE: CNI), Canadian Pacific Railway (NYSE: CP), CSX (NYSE: CSX), Kansas City Southern (NYSE: KSU) and Norfolk Southern (NYSE: NSC) increased somewhat between the November 30 and December 14 settlement dates.
On the other hand, short interest in Genesee & Wyoming (NYSE: GWR) and Union Pacific (NYSE: UNP) declined during that time.
Among freight car manufacturers, short interest in FreightCar America (NYSE: RAIL) also rose, while the number of shares sold short in Greenbrier Companies (NYSE: GBX) and American Railcar Industries (NASDAQ: ARII) diminished.
The biggest percentage swings in short interest in these stocks between the November 30 and December 14 settlement dates happened to Canadian National Railway, Canadian Pacific Railway and Kansas City Southern.
Canadian National Railway
This Montreal-based transportation company saw short interest on the NYSE increase almost 11 percent in the first two weeks of December to 2.74 million shares. That was the third consecutive period of rising short interest, but days to cover remains at a little less than five.
Canadian National is expected to post year-over-year growth in both per-share earnings and revenue when it reports fourth-quarter results in January. It has not fallen short of consensus EPS estimates in the past four quarters. The company now has a market capitalization of about $39 billion and a dividend yield near 1.7 percent. The long-term earnings per share (EPS) growth forecast is about 10 percent and the return on equity is more than 23 percent.
Of the 25 analysts who follow the stock that were surveyed by Thomson/First Call, 19 recommend holding shares, while only three recommend buying them. Their mean price target, or where analysts expect the share price to go, is hardly any higher than the current share price. Shares have traded mostly between $86 and $92 since September, but they are up more than 14 percent year to date. The stock has outperformed competitor Union Pacific and the broader markets over the past six months.
Canadian Pacific Railway
U.S. shares sold short in this Calgary-based company jumped about 50 percent to 3.33 million, the highest short interest in a year. Average daily volume was the highest since May. Days to cover dropped to less than three.
This transcontinental railway has a market cap of more than $17 billion and a dividend yield near 1.4 percent. Canadian Pacific announced restructuring plans in December that included layoffs, asset sales and relocating its headquarters. The company's return on equity is less than 14 percent, but the long-term EPS growth forecast is about 16 percent.
Out of 25 analysts polled, only eight recommend buying shares, but just one ranks the stock at Underperform. The current share price has overrun the mean price target, meaning analysts see no upside potential. However, price targets could rise if Canadian Pacific beats expectations and/or offers rosy guidance when it reports earnings in January. Over the past six months, the stock has outperformed Canadian National and Union Pacific, as well as the S&P 500.
Kansas City Southern
Short interest in the smallest Class I railroad in the United States increased more than 18 percent to 2.17 million shares. That is the highest number of shares sold short in a year and represents about two percent of the float.
In early December, Kansas City Southern was a Jim Cramer stock pick for its exposure to the growing Mexican economy and increasing trade between the U.S. and its southern neighbor. The company now has a market cap of about $9 billion. The long-term EPS growth forecast is more than 17 percent, but the return on equity is less than 14 percent. The dividend yield is less than one percent.
Ten of the 22 analysts surveyed recommend buying shares, while another 10 recommend holding them. They believe the shares have little room to grow, as their mean price target is only about five percent higher than the current share price. But that target would be a new multiyear high. The share price has risen about 18 percent over the past six months. In that time, the stock has outperformed competitors such as Union Pacific, as well as the broader markets.