(Reuters circulated the following story by Ramya Dilip on January 15.)
NEW YORK — Morgan Stanley downgraded railroad company Norfolk Southern Corp. to “equal-weight” from “overweight” but upgraded Canada’s largest railway Canadian National Railway Co. to “overweight” from “equal-weight.”
The investment bank said it saw no near-term catalyst for the shares of Norfolk and hence swapped the company for Canadian National in its recommendations.
“Rails will enjoy solid pricing over the next 2-3 years, resulting in 10-20 percent annual EPS growth through 2010,” Morgan Stanley said in a research note to clients.
Constrained infrastructure, limited government highway funding, higher oil prices, and environmental concerns are factors supporting increased use of rail compared with truck going forward, the investment bank said.
Morgan Stanley said Canadian National was well positioned to outperform its peers in 2008, as it was the only railroad where the investment bank forecast volume growth. It added that recent acquisitions for the company could add to its earnings per share.
The investment bank, however, said a U.S. recession, which would create selling pressure and fluctuations in the Canadian dollar, posed as an investment risk for Canadian National Railway.