Canadian rails look more attractive than U.S. rails to UBS
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UBS issued a warning on the rails sector as the macro backdrop continues to deteriorate.
The firm thinks that the sector-wide consensus EPS estimates for 2023 appear too high for the U.S. rails and expects downward revisions due to moderating 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 the rails to regain share from truck, we believe it will be difficult for the U.S. rails to achieve the ~2.5% volume growth currently reflected in consensus."
As part of its sweep over the sector, UBS cut its 2023 EPS by 10% for CSX Corporation (NASDAQ:CSX) and Norfolk Southern Corporation (NSC) which led to downgrades from Buy to Neutral for both names. UBS said it prefers Canadian rails over U.S. rails and has Buy ratings still in place on Canadian Pacific Railway Limited (CP) and Canadian National Railway Company (CNI). Those stocks are specifically still on the buy list because of the synergy opportunities for CP with the Kansas City Southern integration and the yield/operating improvement focus for CNI under its new CEO.
Union Pacific is the rails stocks with the highest Seeking Alpha Quant Rating.