Norfolk Southern and CSX Corp Downgraded on Deteriorating Macro Backdrop

By Sam Boughedda

In a note on U.S. railroad stocks, a UBS analyst downgraded shares of CSX Corp. (NASDAQ:) and Norfolk Southern Corporation (NYSE:) to Neutral from Buy.

UBS also cut the price target of CSX to $31 from $38 and Norfolk Southern Corporation to $229 from $282 per share.

The analyst told investors in a note that with the macro backdrop deteriorating, consensus 2023 estimates appear too high for U.S. rails and they expect downward revisions from industrial-related and intermodal volume assumptions in the near term.

“While a significant decline in freight demand would likely alleviate existing capacity constraints and lead to the improved service levels needed for rails to regain share from truck, we believe it will be difficult for the U.S.rails to achieve 2.5% volume growth currently reflected in consensus,” explained the analyst. “We are cutting 2023E EPS by 10% for CSX and NSC.”

Later in the note, the analyst explained that they prefer Canadian rails over U.S. rails on idiosyncratic drivers.

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