The share price of Aurizon Holdings Ltd (ASX: AZJ) has crashed by over 8% in the past two days with the stock trading at a two-month low of $4.97 during lunch time trade.
Investors have rushed for the exits after an unfavourable decision by the Queensland competition watchdog on access pricing to the rail operator's service.
The decision prompted Aurizon to issue a stinging rebuke to the Queensland Competition Authority (QCA). In an interview with the Australian Financial Review, the company has accused the QCA of strangling its business and that the state agency had made "fundamental errors and miscalculations in its assessment".
Aurizon believes that it will earn $1 billion less because of the draft decision by the QCA over a four-year period and that is spooking investors. The QCA has set the maximum revenue the company can make at around $3.9 billion.
In a double blow to the rail operator, the agency has also set Aurizon's weighted average cost of capital (WACC) at 5.41% – substantially below what the market was expecting. The WACC is used to justify the amount Aurizon is allowed to charge customers.
However, most analysts seem fairly calm about the QCA outcome and I have not seen a major broker downgrade its recommendation on the stock so far even as many have pared their earnings forecasts.
This means Aurizon might draw in bargain hunters should the stock fall much further from here, particularly from dividend seeking investors with the stock yielding around 5% at current levels (around 60% of its dividend is franked).
What's more, when the final decision from the QCA is released, it could spark a relief bounce in the stock.
This is because Macquarie Group Ltd (ASX: MQG) noted that the draft decision is always harsher than the final determination.
It may be another case of "sell the rumour and buy the fact".
But I think there are better opportunities in the infrastructure sector. The attraction of such stocks is a dependable income stream and yield. Aurizon doesn't provide this level of comfort and it doesn't have the growth options that are available to stocks in other industries, such as tech.
I also don't think Aurizon is as attractive as its peers because of its rolling stock (trains and carriages) and this is why I wouldn't classify it in the same category as stocks that generate consistent earnings.
So those looking for income stocks in the infrastructure sector are probably better off sticking to companies with a better track record and favourable trading conditions even if their yields are not as enticing.
These include market favourites like toll road operator Transurban Group (ASX: TCL), airport operator Sydney Airport Holdings (ASX: SYD) and port and logistics group Qube Holdings Ltd (ASX: QUB).
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