Sector Snap: Analyst sees bumpy road for rails

NEW YORK (AP) — A Citi Investment Research analyst initiated coverage of the railroad sector Friday, warning that deteriorating shipment volume will hamper earnings among some in the group.

The railroads have enjoyed strong pricing and booming earnings growth since earlier this decade, when the industry was consolidated. But as the recession takes hold, shipments have slowed to levels not seen in 50 years, according to analyst Matthew Troy.

This staggering falloff in demand will likely drag down earnings per share this year, he said, as railroads struggle to maintain revenue growth while still making investments in infrastructure.

Although railroads typically pick up ahead of an overall economic recovery, Troy said it's still too early to invest broadly in the group because so much about the length and depth of this recession is still unknown.

He offered a "Buy" rating for Canadian National Railway Co. and Norfolk Southern Co., predicting their business models will best weather the downturn and will be better positioned in a recovery.

He rated CSX Corp., Union Pacific Corp., Burlington Northern Santa Fe Corp. and Canadian Pacific Railway Ltd. at "Hold," suggesting investors should wait until the stocks get cheaper before considering buying shares.

In afternoon trading, Canadian National lost 28 cents to $29.64, and Norfolk Southern gained 2 cents to $27.27.

CSX lost 93 cents, or 4.1 percent, to $21.51. Union Pacific fell 74 cents, or 2.1 percent to $34.69. Burlington Northern gave up 62 cents to $52.61. Canadian Pacific slipped 45 cents to $25.35.