There is an interesting shift in the railroad market, as institutional support and analyst upgrades have caused the stocks to rise from a bottom, with expectations for a recovery that could last beyond 2024. Citigroup’s C analysts believe that the US transportation industry is at an inflection point that will benefit both truckers and rail carriers. This point is due to the current low-rate environment leading to a reduction in capacity and a focus on volume growth. The normalized consumer demand creates the ideal conditions for rails to rebound, given their current low valuations. The market’s current sentiment indicates that the rails are trending upwards.
Norfolk Southern Gets 2 Upgrades
The stock for Norfolk Southern has been upgraded twice, with Citigroup and Wells Fargo WFC both moving the stock from Neutral equivalent ratings to Buy and Overweight. These upgrades are the third and fourth since May 1st, and the stock is now trending at #4 on Marketbeat.com’s list of Most Upgraded Stocks for the last 30 days. This change is noteworthy because the stock is also listed as one of the Most Downgraded Stocks for the last 90 days, indicating a reversal in sentiment. Currently, the 24 analysts covering the stock have it pegged at a Moderate Buy, and the sentiment continues to trend upwards. While the consensus target price has decreased from last quarter, the most recent target is above consensus and indicates at least a 10% increase.
The institutional activity on the stock is mixed quarter to quarter, but overall bullish for the past 12 months, with institutions owning about 73% of NSC and CSX and about 77% of UNP. This buying activity has helped to secure the bottom in the market.
Wells Fargo Initiates CSX At Hold
Similarly, Wells Fargo has predicted a surge in rail carriers and sees intermodal as key to driving results for the eastern carriers. Thus, they have added CSX CSX to their holdings. Wells Fargo initiated CSX at a Hold with a price target slightly below the $34 consensus, but Citigroup’s Buy upgrade from Hold along with NSC and UNP, setting a price target of $37 compared to the $34 consensus, compounds the news. While the consensus target price is steady and implies about a 6% increase in stock value, many of the newest targets are above the consensus, indicating that the stock might continue to rise and retest the highs of 2022.
Following CSX’s Q1 earnings release, the stock received at least 13 price updates, including 12 boosted price targets and 1 reiterated price target above the consensus, with all but three targets being above the consensus. These updates strongly suggest that the stock should easily reach the $34.75 consensus level and then continue higher.
United Pacific Corporation Is At Rock Bottom
Institutional selling, along with a year of downgrades and price target reductions, has taken United Pacific Corporation UNP share prices to rock bottom. However, the situation has turned around, with analysts upgrading the stock, and institutions are buying again. Citigroup recently upgraded the stock to Buy from Hold, with a price target of about 8% above the current price level. While the consensus target price is flat compared to last quarter, it is firmer than last month, thus indicating a bottoming of sentiment.
Notably, all three of these railroads pay reliable dividends, with UNP and NSC paying out 2.5% to 2.6% respectively, and CSX paying a lower yield of 1.35%. Due to the lower payout of earnings, CSX has more capacity to increase the payout, which is what has been happening. UNP and CSC will hit Dividend Aristocrat status in the next few years, while NSC has enjoyed a six-year growth in its dividend payments.
This article “All Aboard! The Sell-Side Has Railroads In Reversal” first appeared on MarketBeat.
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