(The Associated Press circulated the following article on February 6.)
NEW YORK — Shares of Union Pacific Corp. and CSX Corp. traded lower on Tuesday after an analyst at Stifel Nicolaus & Co. downgraded the railroad operators, saying their run-up in recent months leaves very little upside potential.
Shares of Union Pacific, the nation’s largest railroad, fell $1.97 to $100.47 in afternoon trading on the New York Stock Exchange. Earlier in the session, shares traded as low as $100.20, or 2.2 percent lower than its previous close. The stock has traded in a 52-week range of $78.65 to $103.40.
Shares of CSX, the nation’s fifth biggest railroad, gave up 85 cents, or 2.2 percent, to $37.04 on the NYSE. At one point in the session, the stock dipped as low as $36.75. It has traded in a 52-week range of $25.74 to $38.30.
The activity came after John Larkin at Stifel Nicolaus downgraded both names to “hold” from “buy.” Larkin said Union Pacific and CSX now trade too close to his target prices of $111 and $42, respectively, which leaves little upside potential going forward.
Since the analyst moved Omaha, Neb.-based Union Pacific to buy in July, shares have gained 20 percent – after initially falling. Shares of Jacksonville, Fla.-based CSX, meanwhile, have added 19 percent since Larkin upgraded the stock in August. The appreciation on shares of CSX takes into account a 2-for-1 stock split shortly after the upgrade.
“At current valuation levels, we no longer see a compelling reason to be an incremental buyer of either rail stock as the potential upside remaining in the shares is not enough to justify the continuation of our buy ratings,” Larkin said in a research note on Tuesday.
But Larkin said the downgrades included a number of other factors that may lie ahead, including weak year-over-year traffic growth and decelerating revenue growth. The analyst also voiced concern that Union Pacific and CSX may already have tapped the easiest efficiency-enchancing processes available to them, “which is likely to lead to decelerating operating performance improvement, and, ultimately, decelerating margin improvement at each company going forward,” he wrote.