NEW YORK (TheStreet) -- Consensus estimates for railroad operators have been dropping, but need to be taken down further, Citigroup contended in a note to investors this morning.

WHAT'S NEW: Citi analyst Christian Wetherbee noted that consensus estimates in the rail sector for Q2 EPS have fallen an average of 8% since the firm moved below consensus last month, but believes the numbers have to come down further. The analyst said he still thinks the outlook for the sector will improve in the second half of the year based on companies' cost efforts and easier comps, but that the next four weeks may be challenging. Wetherbee cut his Q2 estimates by another 5%, lowered Q3 by 4% and cut his forecast for 2016 EPS by 3% while lowering price targets on stocks in the space by 6% on average. Wetherbee added that he believes Union Pacific  (UNP - Get Report) and Norfolk Southern  (NSC - Get Report) have the highest pre-announcement risk in the group. Wetherbee lowered his price target on Union Pacific to $115 from $120, on Norfolk Southern to $95 from $101, on Canadian National  (CNI - Get Report) to $65 from $74, on Canadian Pacific  (CP - Get Report) to $190 from $208, on CSX  (CSX - Get Report) to $37 from $38 and on Kansas City Southern  (KSU - Get Report) to $105 from $107. Citi has Neutral ratings on Norfolk Southern and Canadian National and Buy ratings on all of the other railroad operators mentioned above.

PRICE ACTION: In early trading, Union Pacific was little changed near $95.55, while Norfolk Southern was flat near $87 per share. Over the last month, those two stocks are each down about 5%.

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