It is a fact that declining coal shipments have hurt railroad stocks in the past few years. Given that coal is a key revenue-generating commodity for railroad operators, headwinds related to the commodity had affected sector participants big time. However, things are looking up for this key sector. Let’s find out why.

Trump Victory a Boon for Railroads?

The victory of President Trump in Nov 2016 turned into a blessing for the sector. This is because of Trump’s pro-coal stance and emphasis on the need to revive the coal industry. He even went on to say, “Coal will last for 1,000 years in this country.” 

Coal is by far the most stable source of energy the U.S. produces, and the industry employs thousands of Americans. Given the President’s preference of fossil fuels over renewable energy, we expect a surge in the usage of coal during the Trump regime. Also, Trump advocates increasing jobs in the coal sector and possibly relaxing regulations. Additionally, increase in industrial production will lead to a rise in coal volumes.

Roll Back of Clean Power Plan

Keeping the promises made during the election campaigns, Trump recently inked an executive order to roll back the Clean Power Plan. The plan was introduced by President Obama in Aug 2015 to reduce carbon dioxide emissions from electricity by 32% from the 2005 level by 2030. Trump’s move is expected to usher in a new era in American energy and production as well as job creation, leading to greater prosperity.

Naturally, railroads like Union Pacific Corporation (UNP – Free Report) , Norfolk Southern Corp. (NSC – Free Report) and CSX Corp. (CSX – Free Report) stand to benefit substantially if the President successfully resurrects the coal industry. With the commodity accounting for approximately over 15% of the revenues for Class I railroads in the U.S., any positive development in this regard will support the industry.

In fact, the President had raised questions regarding climate change and its impact during his campaign as well. Trump, who views climate change as “a Chinese hoax” aimed at making U.S. manufacturing “non-competitive,” might pull out from the Paris climate deal, as well.