(The Associated Press circulated the following article on September 19.)
NEW YORK — Shares of railroad stocks fell on Tuesday in active trading, despite a pair of reasonably bullish outlooks on the sector from industry analysts.
The retreat was led by shares of Norfolk Southern Corp., which lost $1.80, or 4 percent, to $43 in afternoon trading on the New York Stock Exchange.
Shares of Union Pacific Corp. gave up $1.90, or 2.2 percent, to $84.16 on the NYSE, recovering slightly from an intraday low of $83.77.
CSX Corp. shares dropped $1.25, or 3.8 percent, to $31.06 on the Big Board, while shares of Burlington Northern Santa Fe Corp. lost $1.78, or 2.5 percent, to $69.37.
The broader markets were also down Tuesday. In afternoon trading, the Dow Jones industrial average was down 46.66, to 11,508.24. The S&P 500 index dropped 6.147.60, to 1,314.98, and the Nasdaq composite index dipped 24.84, to 2,210.91.
The activity in rails came on the heels of new research reports on the sector from Lehman Brothers and Citigroup.
Lehman analyst Gary Chase, in a mostly positive outlook on the sector, upgraded his recommendation on Burlington Northern by two notches, to “Overweight,” from “Underweight.”
He cut Norfolk Southern to “Underweight” from “Equal Weight,” and CSX Corp. to “Equal Weight” from “Overweight.”
Chase said cutting Norfolk Southern and CSX wasn’t based on fundamentals, but a function of Lehman’s forced ratings scale, which requires analysts to balance ratings across an industry. Both stocks are likely to underperform the broader transportation sector and other railroads under his coverage, he said. Chase retained a “Equal Weight” rating on Union Pacific.
Burlington Northern, meanwhile, offers investors industry-leading growth rate without the premium, Chase said.
In particular, Chase likes Burlington Northern’s access to western ports, where most of the industry’s fast-growing intermodal volumes originate; its access to Wyoming’s Powder River Basin coal deposits, which are becoming a popular alternative to the more expensive eastern varieties; and the railroad’s light exposure to automotive, where volumes are expected to decline.
“We see BNI as a market performer in a downside scenario, but a significant outperformer if the economy surprises to the upside,” Chase said.
Meanwhile, John Kartsonas, an analyst at Citigroup, started coverage on the sector with a positive view.
“Our view reflects our expectation for a continuation of the relatively tight capacity that has characterized the industry,” Kartsonas said in a research note on Tuesday.
Kartsonas warned the traditionally cyclical nature of the industry has not entirely disappeared, but by reducing their dependence on the volatile commodities sector and increasing services to other industries, the companies now have more control over their operations, and, as a result, over volumes and pricing.
Kartsonas assigned “Buy” ratings to Burlington Northern, Norfolk Southern, CSX, and Canadian National Railways Co. He started Canadian Pacific Railway Ltd. and Union Pacific at “Hold,” saying the stocks were priced fairly.
Shares of Canadian Pacific lost 38 cents to $47.784, while share of Canadian National fell 36 cents to $41.40.