• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

Railroad Stocks to Ride as CSX Results Promote a Sectorwide Slide

When there is fear in a sector, there is often opportunity as well.
By KEVIN CURRAN Jul 17, 2019 | 09:21 AM EDT
Stocks quotes in this article: CSX, UNP, KSU, CP, NSC, CNI

CSX Corp.'s (CSX) not-so-strong second-quarter earnings results are carrying its peers downward on Wednesday, but analysts advise this reaction is creating an opportune moment to be buying.

Shares of the overall sector have slid in Wednesday's pre-market, producing moderate declines in Union Pacific (UNP) , Kansas City Southern (KSU) , Canadian Pacific Railway (CP) and Norfolk Southern (NSC)  due to CSX's disappointing results on Tuesday evening. Only Canadian National Railway (CNI) has managed to keep its stock flat as the fears of macro pressures persist.

Still, this response might be undue punishment for the typically reliable railroad stocks.

"The impact to [CSX] earnings estimates are a bit negative (-4% and -5% this year and next), and so we'd expect some moderation in share price [Wednesday] off near all-time highs," Deutsche bank analyst Amit Mehrotra said. "But mid/longer-term we remain encouraged by what we saw in the results, and would use potential weakness in the rail sector tomorrow on the back of these results as a buying opportunity."

Mehrotra cited Union Pacific as his top pick among the bunch as the company continues to excel in implementing precision railroading after the addition of Jim Vena as chief operating officer late last year.

Similarly, Canadian Pacific might have been battered unfairly on Wednesday morning in the eyes of many as its results on Tuesday evening marked a record quarter for the prime mover in precision railroading and diverged sharply from the bearish trends forecast by CSX.

"Diverging volume trends drove the differing outcomes," Loop Capital analyst Rick Patterson commented. "However, in a sense we're looking at the same story in different stages of their evolutions."

Patterson noted that precision railroading has been a hallmark of Canadian Pacific for some time, providing it with more downside protection than its peers.

"CP was first and has had more time to incubate the proverbial pivot to growth where consistently strong service will eventually win over skeptical customers, some of whom have been burned by poor rail service in the past," Patterson said. "While CSX is off to a decent start in this regard, particularly in its merchandise business, it's not there yet and the market is growing impatient. The reality is that it takes years of consistent service to win some of this business off the highways or competing rail carriers and CSX has only demonstrated superior service for about a year now."

In that sense, Patterson suggested it might take years for CSX to catch up to the strides made by Canadian Pacific so far.

Kansas City Southern may be more of a gamble for investors as it should feel the effect of much of the macro pressures moving CSX southbound on Wednesday morning. 

And then there is Norfolk Southern.

"The CSX print may not point toward a Q2 miss at NS, as it has more levers to pull on the cost side," Credit Suisse analyst Alison Landry said. "However, investors may be overlooking the cyclical pricing deceleration that is emerging; indeed, a big part of NS' strategy hinges on rate increases - which could put its long-term targets at risk in the coming quarters."

It is worth noting that on the precision front Norfolk Southern maintains an operating ratio near the top of its peer group, well above both CSX and Canadian Pacific.

With some caveats in mind, it might be time for investors to consider riding the rails through the second half of the year. Just make sure you pick up the right ticket.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricting individual securities.

TAGS: Earnings | Investing | Markets | Politics | Stocks | Transportation | Industrials | China | Real Money | Analyst Actions | Stock of the Day

More from Stocks

Here's the Secret to Market Timing

James "Rev Shark" DePorre
May 21, 2022 10:00 AM EDT

You've probably been told timing the market is futile, but here's a way to make it possible -- if you're willing to do the work.

It's Official: That Hairy Animal With Claws and Sharp Teeth Is a Bear

James "Rev Shark" DePorre
May 20, 2022 4:31 PM EDT

Along with the media proclamation of a bear market, we have some improvement in the charts of many smaller stocks, but ...

Applied Materials Slips on Miss: Where Will the Chips May Fall

Bruce Kamich
May 20, 2022 1:00 PM EDT

Let's see what the charts say.

Consumer Confidence Is Shot

Bret Jensen
May 20, 2022 12:00 PM EDT

Until things start to improve for the average consumer, it is hard to see significant upward moves for either the markets or economic activity.

I'm Cautious on Marvell Technology Ahead of Earnings

Bruce Kamich
May 20, 2022 11:52 AM EDT

Let's review the charts and indicators.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 10:10 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "Market Timing for Dummies"
  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • 03:07 PM EDT PAUL PRICE

    Why Is Walmart Down Big Today?

    Besides its poor earnings report Walmart was way...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login