Some Wall Street investors are showing confidence in the rail freight industry by predicting a recovery and urging clients to invest in companies that provide freight services by rail. Their confidence is based on weekly freight transport data, which indicates that rail freight traffic is up considerably from last spring even though volume is down in some sectors, by 20 percent from 2008 levels. They say that the expected growth in the rail freight industry will be driven mostly by moving freight for industrial clients rather than U.S. consumers.
Early in September, BMO Capital Markets raised its rating of rail freight carriers Norfolk Southern Corp. (NSC) and CSX Corp. (CSX) to outperform competitors, expecting coal, manufacturing and chemicals to boost the finances of both companies.
“My instinct says we have a recovery,” lead analyst Randy Cousins told Dow Jones Newswires. He called the second quarter of 2009 a bottom, while noting that the year-over-year numbers “are still ugly.” Cousins also said that international shipments are still hard-hit, as well as intermodal.
Shares of major rail freight carriers were up in early September with CSX leading with a 6.4% jump to $44.38, while Norfolk Southern rose 5.2% to $46.79, and shares in Union Pacific Corp. (UNP) rose 2.3% to $60.03. However, the investment firm was not optimistic on the performance of all rail stocks. It warned clients from investing in rail carrier Burlington Northern (BNI) saying, “The U.S. consumer will be in financial rehab for a couple of years.”
Venerable Wall Street firm Morgan Stanley was also advising investors to buy freight rail stocks, telling clients that investing in some rail stocks was “best way to play an industrial recovery.” Morgan Stanley analysts cited increased demand for commodities important to auto production such as metals, metallic ores and chemicals as part of their recommendations. They claimed that commodity shipments in August 2009 improved at five major railroads and that intermodal freight traffic had improved four out of the previous five weeks. They boosted investor confidence in rail stocks by saying that railroads were a very good hedge against any devaluation of the dollar.
