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CSX The Only Rail Worth Riding? Deutsche Bank Downgrades, Turns Neutral On The Rest

CSX The Only Rail Worth Riding? Deutsche Bank Downgrades, Turns Neutral On The Rest

Among a host of downgrades of industrial-focused transportation companies, Deutsche Bank said CSX Corporation (NASDAQ: CSX) is the only rail company it still has a Buy rating on.

Meanwhile, the firm downgraded shares of Norfolk Southern Corp. (NYSE: NSC), Old Dominion Freight Line (NASDAQ: ODFL) and Landstar System, Inc. (NASDAQ: LSTR).

Explaining the logic behind their opinion on CSX, analysts Amit Mehrotra and Seldon Clarke said CSX has outsized earnings and cash flow growth opportunities, arising out of the new management's aggressive restructuring.

See Also: Why A Hunter Harrison Bid For CSX Isn't As Simple As It Seems

Landstar Spooked By Exposure To U.S. Industrial Activity

Although the firm termed Landstar as one of its favorite under-the-radar stocks within its coverage universe, it prefers to pause in the second half and 2018. The firm clarified that the company has significant exposure to the U.S. industrial activity through its flatbed business, which accounts for about 30 percent of the company's gross revenue.

Accordingly, the firm moderated its earnings growth forecast for the second half and 2018, with the earnings per share estimate now at $4.05, down from $4.50.

Old Dominion Freight Downgraded Mainly On Valuation

Deutsche Bank attributed its downgrade of the shares of Old Dominion Freight to its strong outperformance in the year-to-date period. Additionally, concerns around U.S. industrial production is expected to pinch, the firm added.

"We also see limited scope for non-volume driven margin expansion, given ODFL's already best-in-class returns," the firm clarified.

Deutsche Bank now sees 17-and 15-percent earnings growth, respectively, in the second half and for 2018.

Lower Auto Production To Hit Norfolk Southern

Deutsche Bank said difficult comps and lower auto production in the second half of 2017 and 2018 would impact Norfolk Southern. The firm sees a 6-percent drop in auto production in the third quarter, with General Motors Company (NYSE: GM)'s expected to be down a steeper 19 percent, reflecting new platform launch.

Specifically, GM's production at the Fort Wayne assembly plant, serviced by Norfolk Southern, is expected to see a 50-percent year-over-year drop in production.

The firm said it moves to the sidelines on the company due to these headwinds, along with difficult overall volumes and mix comparisons and risks to U.S. industrial production.

Deutsche Bank lowered its second-half earnings growth estimate for the company to 3 percent from 7 percent and also moderated its 2018 estimates.

Rating/Price Target

  • CSX: Maintains at Buy.
  • Landstar: Downgraded from Buy to Hold/price target reduced from $97 to $87.
  • Norfolk Southern: Downgraded from Buy to Hold/reduced from $132 to $104.
  • Old Freight Dominion: Downgraded from Buy to Hold/reduced from $108 to $98.

At Time Of Writing

  • Shares of CSX were off 0.70 percent at $49.64.
  • Landstar was adding 0.30 percent to $82.55.
  • Norfolk Southern was slipping 0.43 percent to $114.74.
  • Old Dominion Freight Line shares were sliding 2.30 percent to $95.79.

Latest Ratings for CSX

Nov 2020Credit SuisseMaintainsOutperform
Oct 2020RBC CapitalUpgradesSector PerformOutperform
Oct 2020Wells FargoMaintainsEqual-Weight

View More Analyst Ratings for CSX
View the Latest Analyst Ratings


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