Bank Of America: Demand Soft For Big Rail Carriers

Major rail carriers are seeing lower-than-expected demand that reflects weak growth in commodities, an analyst said Wednesday.

Ken Hoexter of Bank of America trimmed his targets on three of the companies, while lowering his 2015 earnings estimates by an average of 4 percent.

"We remain cautious on the group," Hoexter said, although he believes that sequential growth will resume following the third quarter.

Hoexter nonetheless reaffirmed Buy ratings on three rail companies he believes are not threatened by service issues: Canadian Pacific Railway Limited (NYSE: CP), Union Pacific Corporation (NYSE: UNP) and CSX Corporation (NYSE: CSX).

Soft demand for rail services will keep stock price gains muted in the short term, according to Hoexter.

But growth investors are likely to "revisit the group" later in the year when comparable results get easier, Hoexter said.

Related Link: Weakness In Rail Numbers Continues

Hoexter cut his target by 4.5 percent on Canadian National Railway (NYSE: CN) to $66; on Canadian Pacific Railway by 1.5 percent to $192, and on Norfolk Southern Corp. (NYSE: NSC) by 4.8 percent to $100.

The analyst also lowered his price objective on Union Pacific by 1.7 percent to $114.

Shares of both Union Pacific and Norfolk are off about 15 percent year-to-date, and both were nearly unchanged Wednesday at about $101.14 and $92.31, respectively.

Canadian National and Canadian Pacific are each down about 12 percent this year, and traded recently at $60.87 and $167.90, respectively.

CSX has declined by just 3.75 percent since December, and traded recently at $34.86.