New York, September 21 (FinanceEnquiry.com) – Analyst Justin Yagerman at Deutsche Bank Securities reports on Railroads –Rail update of third quarter.
In a research note published on September 20, the analyst mentions that target prices of CSX Corp {(NYSE: CSX) (Buy)}, Norfolk Southern Corp {(NYSE: NSC) (Hold)} have been reduced from $26 to $25 and $84 to $78, respectively. In addition to this, by 5.2 percent on average {4.2 percent at CSX Corp, 9.4 percent at Norfolk Southern and 1.9 percent at Union Pacific (NYSE: UNP)}, EPS estimates of railroad 2012 have also been lowered.
In opposition to the consensus and estimate of $1.63 and $1.64, respectively, third quarter EPS of $1.18 to $1.25 was pre-announced by Norfolk Southern Corp on September 19 after the market close. Also, volume and yield expectations for coming year have also been adjusted in the middle of softer economic backdrop. Therefore, with the largest cuts again at the East Coast rails, EPS estimates of 2013 rail were lowered by 5.4 percent on average.
Furthermore, due to the macro uncertainty, geopolitical risk namely European debt crisis and deleveraging, target prices of rail apply a forward P/E multiple to the EPS estimates of 2013 discounted by 2 percent (down from 4 percent) in order to reflect restricted visibility. Moreover, weaker coal volumes, possible re-regulation of rail and the economy have been comprised in the downside risks, the analyst adds further.
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