(The Associated Press circulated the following on January 23.)
NEW YORK — Railroad stocks rebounded in midday trading Wednesday following an early slump, as investors applauded stronger-than-expected earnings reports and a sector upgrade by a Bear Stearns analyst.
Analyst Edward Wolfe raised his rating on the rail sector to “Overweight” from “Market Weight,” suggesting that the group’s stocks will pick up before the overall U.S. economy begins to improve.
The group is generally aided when the Federal Reserve cuts interest rates as well, the analyst said. The Fed slashed a key interest rate by three-quarters of a percentage point before the market opened Tuesday.
Furthermore, although demand is not yet improving, Wolfe said carloads seem close to their lowest levels after 14 months of year-over-year declines.
Pricing should improve across the sector going forward, he said, although lower supply and increased competition will keep it from reaching levels seen in recent years.
Wolfe also expects railroads to grab business from the trucking industry as highway congestion worsens and fuel costs continue to climb.
The analyst upgraded Union Pacific Corp., Burlington Northern Santa Fe Corp. and Canadian National Railway Co. to “Outperform” from “Peer Perform,” saying the rails are the best buying opportunity for investors following the sector’s recent pullback.
Canadian National Railway Co. said Tuesday its fourth-quarter profit rose on a slew of one-time gains. Also Tuesday, CSX Corp. and Norfolk Southern Corp. both reported fourth-quarter results that beat Wall Street’s expectations.
Wolfe called Norfolk Southern’s fourth-quarter earnings “surprisingly strong,” and suggested the stock was undervalued.
In midday trading, Union Pacific Corp. rose $1.82 to $112.19, and Burlington Northern Santa Fe Corp. climbed 97 cents to $77.48. Canadian National Railway jumped $2.11, or 4.8 percent, to $45.87, and Canadian Pacific Railway Ltd. gained $1.51, or 2.6 percent, to $60.54.
Norfolk Southern Corp. added $2.15, or 4.8 percent, to $47.22, while CSX Corp. gained 29 cents to $43.68.
Bucking the trend was Kansas City Southern, which fell 42 cents to $31.