Macquarie Upgrades Union Pacific, Kansas City; Revisits Railroad Sector


Union Pacific (NYSE: UNP) trended up slightly on Tuesday after one analyst named it his top pick in the railroad sector.

Macquarie's Cleo Zagrean revisited ratings on a batch of stocks in the sector and upgraded Union Pacific from Neutral to Outperform.

Union Pacific is digging out from under rail network congestion problems faster than competition and it's less dependent on shipping Eastern coal. That, coupled with an analysts' conference slated by the company for November that could drive the shares higher, led Zagrean to boost his target on Union Pacific to $119 from $108.

A growing market for delivering oil sands by rail to refineries leaves Union Pacific well-positioned relative to competition.

Zagrean said the same for Kansas City Southern (NYSE: KSU), which he upgraded from Underperform to Neutral. Kansas City's exposure to Mexico is also a bright spot.

Mexican legislative uncertainty and delayed energy projects there remain risks, but automotive shipments and increasing volume growth prompted Zagrean to raise his KSU price target to $114, from $106.

Headwinds for the whole industry include a weaker market for coal, as well as prospects for tighter safety regulation on crude oil shipments, Zagrean said.

In other sector ratings actions:

  • Downgraded CSX (NYSE: CSX) from Outperform to Neutral, citing heavy exposure to coal and lagging progress on overcoming network congestion.
  • Maintained Neutral ratings on Norfolk Southern (NYSE: NSC) and Genesee & Wyoming (NYSE: GWR), citing Norfolk's coal exposure and Genesee's dependence on Australian iron ore.

Union Pacific was up 0.3 percent Tuesday. Both Norfolk and Genesee were also down slightly. Other shares in the sector were largely unchanged.

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