As the song title indicates, I too have been working on the railroad. My motivation has been understanding the interest of investors with good history: Warren Buffett and Carl Icahn.
The railroad industry is the most capital intensive of all industries. Capital intensivity is so unattractive that I refer to the characteristic as being a "capital pig." Railroads are capital hogs, consuming over 20% of their revenues with track maintenance. Trucking companies, in contrast, pay a much lower percentage of revenues in taxes for support of road maintenance.
So what's to like? Warren Buffett commented "As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors — truckers — roughly by a factor of four." This is a powerful metric in a rising fuel cost environment. In addition, there has been consolidation to the point that the industry has more pricing power than in the past with very few new tracks being built. This is important, because a typical cylical stock (as in commodity cycles) generates more capacity just as profits get strong. In the railroad business, such a cycle is unlikely.
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