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Weakness In Rail Numbers Continues

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Weakness In Rail Numbers Continues
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Analysts at Citi Research recently took an in-depth look at rail stocks following a fresh set of volume numbers. With volumes coming in below Citi’s projections, analysts scaled back their Q2 expectations for rail stocks.

Lagging In 2015

Overall, rail stocks have lagged in 2015, dropping 11 percent on average this year. Lagging Q2 volumes are simply more of the same for rail stocks this year after Q1 volumes also came up short of expectations.

“While we believe we are getting close to the end of share price pressure, the setup through the second half of Q2 and into July earnings is choppy, which may keep value buyers on the sidelines near-term,” analysts explain in the report. However, they point to easier comps on the way starting in June.

Second Half Pickup?

Analysts note that carloads remain positive ex-coal and grain. While the weakness in coal will likely persist for a while, Citi believes that a pickup in grain carloads should be on the way in the second half of the year.

Analysts also predict that rail stocks will find support at their historical earnings multiples of around 15.5x.

Stock Picks

Citi analysts choose Canadian Pacific Railway Limited (NYSE: CP) as their top rail stock. Not only does the company have volume catalysts coming in the second half of the year, the stock presents a compelling valuation relative to peers.

In addition to Canadian Pacific, Citi has Buy ratings on CSX Corporation (NYSE: CSX), Kansas City Southern (NYSE: KSU) and Union Pacific Corporation (NYSE: UNP). Citi has Hold ratings on Canadian National Railway (USA) (NYSE: CNI) and Norfolk Southern Corp. (NYSE: NSC).

Latest Ratings for CP

DateFirmActionFromTo
May 2018Stifel NicolausReinstatesHold
Apr 2018Credit SuisseMaintainsOutperformOutperform
Apr 2018Morgan StanleyMaintainsOverweightOverweight

View More Analyst Ratings for CP
View the Latest Analyst Ratings

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