(The Associated Press circulated the following on October 11.)
NEW YORK — A Lehman Brothers analyst on Thursday downgraded shares of Burlington Northern Santa Fe Corp. and CSX Corp. on a run-up in share prices, and upgraded Norfolk Southern Corp. on its ability to generate cash.
Lehman’s Garrett Chase said the transport sector tends to do well after an interest rate cut, but said any gains will be overshadowed by high valuations. Although rail shares declined recently, he said they rallied before that on buyout speculation, share buybacks and Berkshire Hathaway’s interest in the industry, despite deteriorating fundamentals.
“We believe long-term transportation fundamentals are sound, but find few true bargains among our coverage universe,” Chase wrote in a client note.
Chase downgraded Burlington Northern to “Equal Weight” from “Overweight” and lowered his price target to $88 from $91, implying upside of nearly 3 percent to Wednesday’s closing price of $85.56.
Chase said Burlington Northern has disappointing volume, especially in its intermodal business where freight is carried between more than one form of transport.
Chase downgraded CSX to “Underweight” from “Equal Weight” but raised his price target to $43 from $35. Chase said CSX’s stock has risen sharply, despite a “stagnant” earnings outlook.
“The combination of what in our view are the highest expectations and the highest relative valuation in the group makes CSX the least compelling railroad we follow,” Chase wrote.
Chase said Norfolk Southern’s underperformance is likely coming to an end and raised his price target by $4 to $58.
“Norfolk Southern is consistently the most profitable railroad we follow and the best cash generator in the group,” Chase wrote in a client note.