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Rail Stocks Are a Bargain Now, Analyst Says. He Upgraded Two.Rail Stocks Are a Bargain Now, Analyst Says. He Upgraded Two.Barron's (Online); New York Rail stocks are approaching a bottom , according to one analyst on Wall Street, who upgraded shares of two companies as a result. Stifel analyst Benjamin Nolan upgraded East Coast railroads CSX (ticker: CSX) and Norfolk Southern (NSC) to Buy from Hold on Thursday evening. His stock-price target for Norfolk went to $275 from $289. Nolan's CSX stock price target went to $37 from $39. Both target prices came down a little, but CSX and Norfolk shares have been badly beaten up. Coming into Friday trading, CSX and Norfolk shares were down about 25% and 26% year to date, respectively. That is worse than the performance of peers Union Pacific (UNP), Canadian Pacific Railway (CP), and Canadian National Railway (CNI), whose shares are down about 10% year to date on average. The underperformance of the former two means that their stock prices have fallen to less than 15 times the per-share earnings expected for the next year, from about 19 times. "Rail equities have re-rated and are now at much more attractive multiples relative to what had been anticipated earnings power," wrote Nolan in his research report. He still has his concerns about a weakening economy. "However, relative to previous [economic] cycles, we believe rails should be better insulated as persistently higher fuel prices should enable share gains over trucking," added Nolan. "In addition, rails should capture share on currently underutilized carload business being impacted by supply chain congestion." With the upgrades, about 68% of analysts covering CSX rate share Buy and 54% of analyst covering Norfolk rates shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%. Among the rest of the major railroads, 57% of analysts rate Union Pacific at Buy, 53% rate Canadian Pacific at Buy, and just 30% rate Canadian National at Buy. CSX stock was up 1.7% in premarket trading, while Norfolk shares hadn't begun trading . Futures on the S&P 500 and Dow Jones Industrial Average futures were up 0.4% and 0.5%, respectively. |
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