Get All Access for $5/mo

All Aboard! The Sell-Side Has Railroads In Reversal The analysts and institutions have put a bottom in the rail industry and may propel it to new highs by the end of the year.

By Thomas Hughes

This story originally appeared on MarketBeat

railroad track, stocks Growing trends within the railroad market have the stocks in reversal. The combination of institutional support and analysts' upgrades have the stocks at a bottom and moving higher with an expectation for a recovery that could last beyond 2024. In Citigroup's (NYSE: C) eyes, the US transportation industry is at an inflation point that will lift truckers and rail carriers. That inflection is driven by a low-rate environment that is leading to a reduction in capacity. The capacity reduction and normalized consumer demand have the rails set up to rebound, given their current low valuations and a renewed focus on volume growth.

Norfolk Southern Gets 2 Upgrades

Citigroup and Wells Fargo (NYSE: WFC) upgraded Norfolk Southern (NYSE: NSC) to Buy and Overweight from Neutral equivalent ratings. These are the 3rd and 4th upgrades for the stock since the 1st of May; because of them, the stock is trending at #4 on Marketbeat.com's list of Most Upgraded Stocks for the last 30 days. This is telling because the stock is also listed as 1 of the Most Downgraded Stocks for the last 90 days, indicating a reversal in sentiment. As it is, the 24 analysts covering the stock have it pegged at Moderate Buy, and the sentiment is trending upward from Hold. Similarly, the consensus target is down compared to last month and last quarter, but the most recent is above consensus and indicates at least 10% of upside is available.

The institutional activity is mixed quarter to quarter but bullish on balance for the last 12 months. The institutions own about 73% of NSC and CSX, and about 77% of UNP, so their activity is noteworthy. The institutions have been buying the others as well and have helped to put the bottom in the market.

NSC stock chart

Wells Fargo Initiates CSX At Hold

Wells Fargo sees a similar inflection for the rail carriers but added a twist to the call. In their eyes, intermodal should help drive results for the eastern carriers, so they added CSX (NYSE: CSX). Wells initiated CSX at Hold with a price target slightly below the $34 consensus, and an upgrade from Citigroup compounds the news. Citi upgraded CSX to Buy from Hold along with NSC and UNP, setting a price target of $37 compared to the $34 consensus. The consensus target is steady and implies about 6% of the upside, although many of the newest targets are above the consensus.

CSX stock received at least 13 updates following its Q1 earnings release. Those included 12 boosted price targets, 1 reiterated price target above the consensus, and all but 3 targets above the consensus. If this trend continues, the stock should easily reach the $34.75 consensus level and then continue higher to retest the highs set in 2022.

United Pacific Corporation Is At Rock Bottom

United Pacific Corporation (NYSE: UNP) share prices are at rock bottom after a year of downgrades, price target reductions, and institutional selling. The bottom is in because the analysts are upgrading the stock, and the institutions are buying again. The stock was upgraded to Buy from Hold at Citigroup with a price target of about 8% above the price action. The consensus target is firmer than last month and flat compared to last quarter, showing a bottom in sentiment.

UNP, NSC, and CSX all pay reliable dividends. UNP and NSC pay 2.5% to 2.6% each, while CSX pays a lower 1.35% yield. The difference is that CSX pays less of earnings, so it has more capacity to increase the payout, and these stocks are increasing their distributions. UNP and CSC are on track to hit Dividend Aristocrat status in the next few years, while NSC has increased for 6 years.

CSX stock chart

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Business Solutions

Increase Productivity with This Microsoft 365 Subscription, Now $25 Off

It can make the entrepreneur life a lot easier.

Business News

Apple Pay Later Is Ending. Here's What's Taking Its Place.

The program was available for less than a year.

Leadership

This Artist Answered a Businessman's 'Powerful' Question — Then His Work Became 'the Poster Child for Juneteenth': 'Your Network Really Becomes Your Net Worth'

Reginald Adams was the executive director of a Houston-based art museum for more than a decade before he decided to launch his own public art and design firm.

Leadership

Harvard Business School Professor Says 65% of Startups Fail for One Reason. Here's How to Avoid It.

Team alignment isn't nice to have -- it's critical for running a successful business.

Business News

Here's What Companies Are Open and Closed on Juneteenth 2024

Since it became a holiday in 2021, Juneteenth has been recognized by some major corporations as a paid day off.

Growing a Business

I Hit $100 Million in Annual Revenue by Being More Transparent — Here Are the 3 Strategies That Helped Me Succeed

Three road-tested ways to be more transparent and build relationships that can transform your business — without leaving you feeling nightmarishly over-exposed.