(The Associated Press circulated the following article by Alex Davidson on April 14.)
NEW YORK — Shares of Burlington Northern, Norfolk Southern and Canadian National Railway declined Thursday after JP Morgan cut its rating on the three railroad companies, citing concerns about excess capacity and valuation.
After JP Morgan analyst Gregory Burns cut his ratings to “neutral” from “overweight,” saying capacity expansion in the rail sector could outpace demand.
In afternoon trading on the New York Stock Exchange, shares of The Burlington Northern and Santa Fe Railway Corp. fell $3, or 5.8 percent, to $48.39; Norfolk Southern Corp. shares fell $1.55, or 4.6 percent, to $31.93; Canadian National Railway Co. shares fell $2.27, or 3.8 percent, to $57.79.
Burlington Northern is based in Fort Worth, Texas. Norfolk Southern is based in Norfolk, Va. Canadian National is based in Montreal.
Railroad stocks Thursday are the worst performing of the 100 industry groups tracked by Dow Jones.
“The Class I railroads are expanding capacity after years of shrinking capacity,” Burns wrote in a Thursday research note that predicted a surplus from 2006 on.
Burns’ ratings cut on the three rail stocks puts them in line with JP Morgan’s ratings on Union Pacific Corp. and CSX Corp.
The analyst also said he expects rail prices to be undermined by excess capacity in trucking in 2006 and 2007.
Burns said Burlington Northern is the most exposed to increasing truck capacity, which he said will drive truckers to be more competitive.
He added that Burlington Northern’s competitor, Union Pacific, will improve operations and boost capacity that will put further pressure on Burlington Northern’s growth.
He said rail valuations have seen their cyclical peaks and that rising interest rates will make further valuation expansion for rail stocks more difficult.
Burns could not be reached to determine if he owns shares of any of the companies mentioned.
JP Morgan or its affiliates acted as lead or co-manager in a public offering of equity and/or debt securities for Burlington Northern, Canadian National and Union Pacific within the past 12 months.
JP Morgan has received compensation from Burlington Northern, CSX, Canadian National, Norfolk Southern and Union Pacific for investment banking services in the past 12 months.