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Stifel Upgrades CSX, Marten Transport, Kansas City Southern; Cites Recent Market Volatility

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Stifel Upgrades CSX, Marten Transport, Kansas City Southern; Cites Recent Market Volatility

With investor attention mostly focused on technology, social media, energy and other "hot" sectors following the recent market selloff, they may be missing out on opportunities within the trucking/logistics and rail sectors.

In separate reports published on Wednesday, John Larkin of Stifel upgraded shares of Marten Transport, Ltd (NASDAQ: MRTN), Kansas City Southern (NYSE: KSU) and CSX Corporation (NYSE: CSX).

Marten Transport: Growing Sector, Attractive Fundamentals

According to Larkin, the truckload segment has been growing in terms of volume and core pricing at a mid-single digit throughout 2015 and is expected to continue doing so for at least the remainder of the year.

Marten Transport has demonstrated volume and rate increases and continues to improve its margins. The company's stock has been hit as of late in what the analyst described as an "inappropriate interrelation" between the spot market and the contract market. The spot market, he argued, is "soft" but does not influence the contract market as shippers fear further capacity issues.

Meanwhile, shares of Marten are now trading just below the middle of its historical range on an absolute basis, and just above the bottom on a basis relative to the S&P, and above parity to the broader truckload space.

Bottom line, the stock has lost over 21 percent following the recent selloff which makes the upside case more attractive.

Shares were upgraded to Buy from Hold with an unchanged $24 price target.

Kansas City: Stock Is Now ‘Sufficiently Beaten Down'

Larkin's position on Kansas City is simple enough: the stock has been "sufficiently beaten down."

Larkin noted that he has been "the bear of the Street on this name" throughout the 2014 railroad bull market, but following recent declines in the stock, it is now "fully valued." The analyst continued that the stock is now trading near the middle of its historical range on an absolute basis, below the middle on a basis relative to the broader S&P, and near parity to the broader railroad space.

Larkin further stated that his prior Sell rating was based on the company's poor guidance related to overly optimistic expectations in oil, auto, and intermodal. In fact, oil is now at the lowest price in years, auto factory starts have been delayed, intermodal service is "too poor" to trump trucking, and the primary port of call is too small to justify growth.

However, the analyst acknowledged that the stock could "potentially become interesting" in the future if industry trends turn positive.

Shares were upgraded to Hold from Sell with an unchanged $90 "fair value estimate."

CSX: Operational Improvements

According to Larkin, CSX has been the best performing eastern railroad year-to-date as it continued to exhibit operational improvements in margins.

Larkin said CSX's "black eye" (coal) is unlikely to improve, but the analyst is expecting the rest of the year to be negative of carloads and revenue per carload which is a "good set up" for next year.

The analyst also noted that the stock's recent decline is more "macro related" and not railroad-specific. The stock is now trading near the middle of its historical range on an absolute basis, between the bottom and the middle on a basis relative to the broader S&P, and near parity to the broader railroad space.

Shares were upgraded to Buy from Hold with an unchanged $35 price target.

Latest Ratings for CSX

DateFirmActionFromTo
May 2020Wells FargoMaintainsEqual-Weight
May 2020UBSUpgradesNeutralBuy
Apr 2020UBSMaintainsBuy

View More Analyst Ratings for CSX
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