Rails stocks are cut at Citi because the economy may slow
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Citi turned cautious on the rails sector on the simple premise that a slowing economy will hurt demand for goods.
"We are not fully baking in a recession across any of our coverage, but rather an environment in which the US avoids a recession, but consumer spending pivots meaningfully toward services and goods are sluggish," noted analyst Christian Wetherbee.
Rails are noted to have outperformed, with relative valuation improving over the last six months and earnings growth expectations at the highest. That combination is seen limiting relative performance in a potentially decelerating demand environment.
Weighing the macro backdrop, Citi dropped its rating on CSX Corporation (NASDAQ:CSX), Norfolk Southern (NYSE:NSC) and Union Pacific (NYSE:UNP) to Neutral from Buy. The corresponding price target cuts were CSX to $35 from $45 (+8% upside), NSC to $260 from $345 (+9% upside) and UNP to $235 from $287 (+4% upside).
In premarket action, CSX fell 1.70% and NSC shed 1.60%. UNP was off 1.36%.
Compare Seeking Alpha Quant Ratings in the rails sector.