The Ratings Game: Watch these rail stocks in 2023, says Evercore


An analyst firm has come out with some rail stocks to watch in 2023, now that concerns about a disruptive strike have ebbed. President Joe Biden signed a bill earlier this month imposing a deal on rail-freight workers.

“Labor no longer appears to be the nuclear risk (strike averted, most rails now appropriately resourced), supply chain disruptions have ebbed meaningfully, and comparisons have few anomalies to consider,” Evercore analyst Jonathan Chappell wrote in a note released on Tuesday. “That said, there is plenty of risk (and reward) as it relates to the macro backdrop and how nimble rails can be in a weaker-than-expected volume environment.”

Set against this backdrop, Evercore upgraded Union Pacific Corp.

to outperform. “After vast relative underperformance over the last 3 months (roughly 900 basis points) to the U.S. rails, [Union Pacific’s] relative multiple discount more than compensates for well-known [fourth quarter 2022 earnings-per-share] risk,” Chappell wrote. “As we look to EPS growth and [return on invested capital] potential over the next two years, we believe [Union Pacific] will regain its multiple premium to its U.S. peers.”

Now read: Senate passes bill to prevent rail strike, rejects measure providing paid sick leave

The analyst firm raised its price target for Union Pacific to $232 from $204. Union Pacific’s stock ended Monday’s session down 0.5%, compared with the S&P 500’s

gain of 0.1%.

Evercore also raised its price target for CSX Corp.

to $37 from $32. “We like the rails overall as an investment, but we prefer those with the most attractive relative valuation, namely CSX,” Chappell wrote. CSX Corp.’s stock ended Monday’s session down 1.4%.

The analyst also highlighted Canadian Pacific Railway Ltd.

and Canadian National Railway Co.

as worthy of attention. “Canadians proved their safe-haven status, with [Canadian Pacific] the only stock under our transports coverage to be up on the year (3.4%) and [Canadian National] coming in second place (down only 2.45%),” he wrote. Evercore raised Canadian Pacific’s price target to $84 from $81, and raised Canadian National Railway’s price target to $134 from $123.

Canadian Pacific’s stock ended Monday’s session up 0.6%, while Canadian National was down 0.2%.

Related: Low water levels along Mississippi River present a competitive opportunity for railroads, says analyst

However, Evercore downgraded Norfolk Southern Corp.

to “In Line” on relative valuation and what Chappell described as “the most muted share price appreciation potential” in the analyst firm’s rail-coverage universe. But the firm raised its price target for Norfolk Southern to $262 from $240.

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