Union Pacific and Two Other Railroads Are Downgraded. There Are Better Values in Transport Stocks.
The engine of a CSX freight train traveling on the train tracks in spring.
Dreamstime.com
Transportation stocks have been hammered in the recent market selloff, with investors afraid that inflation will hurt demand for shipping while raising costs for gas and drivers. That combination isn’t a good recipe for earnings growth.
Railroad stocks dropped again Thursday after a downgrade added to investors’ worries.
Citigroup analyst Christian Wetherbee downgraded shares of CSX (ticker: CSX), Norfolk Southern (NSC) and Union Pacific (UNP) to Hold from Buy.
His CSX price target was reduced to $35 a share from $45. His Union Pacific target went to $235 a share from $287. And his Norfolk target was dropped to $260 a share from $345.
“While general trends across transportation remain relatively stable, with pockets of weakness isolated to [truck load] spot rates and e-commerce package volume, we think it’s prudent to factor in a more cautious scenario for 2023,” wrote Wetherbee.
But rails have the highest projected earnings growth in the transportation sector, and other transport stocks haven’t faired as well. That combination leaves Wetherbee believing there are better values elsewhere under his coverage.
For instance, he rates FedEx (FDX) shares at Buy. His price target for that stock is $270.
Coming into Thursday trading, FedEx stock has fallen about 21% this year. CSX, Norfolk and Union Pacific — along with the Canadian-based railroads Canadian Pacific Railway (CP) and Canadian National Railway (CNI) — have dropped about half that amount, on average.
Rails were getting hit harder in premarket trading Thursday. FedEx stock was down about 0.4%. CSX shares fell 2%. Union Pacific shares tumbled 2.1%, and Norfolk stock fell about 2.7%.
The market is weak again. S&P 500 and Dow Jones Industrial Average futures declined 1.2% and 1.1%, respectively.
The S&P dropped 4% Wednesday and the Dow Jones Transportation Average fell a painful 7.4%. The transport index, which includes railroads, truckers, airlines and other logistics providers, is down about 17% and off about 25% from its November 52-week high. That’s bear market territory for the sector, down more than 20% from recent highs.
With the downgrade, 67% of analysts covering CSX stock rate shares at Buy, 70% rate Union Pacific Buy and 56% rate Norfolk shares at that level. The average Buy-rating ratio for stocks in the S&P 500 is about 58%. The U.S. railroads, overall, are a little more popular than the Canadian-based railroads. Canadian Pacific Railway has a Buy-rating ratio of 58%, but only about 28% of analysts covering Canadian National Railway rate shares Buy.
Write to Al Root at [email protected]
