NEW YORK (TheStreet) -- Shares of freight railroad CSX Corp (CSX) were up 1.77% to $34.48 in Thursday afternoon trading after BMO Capital Markets simultaneously raised its price target on the stock and downgraded it to "market perform" from "outperform" in a research note circulated to investors Thursday morning.
CSX should see its shipping volumes increase despite a moderate headwind from a slowing coal market, BMO analyst Fadi Chamoun argued in the note, believing that intermodal shipping will lead the way. As of Sept. 23 - the end of the third quarter - CSX has shipped roughly 2.05 million intermodal units year-to-date, pulling in roughly $1.25 billion in revenue.
Those numbers are actually slightly down year-over-year, but CSX beat analyst expectations when it reported third quarter earnings on Oct. 12. The railroad reported earnings per share of 48 cents on $2.71 billion in revenue. Analysts had expected to see earnings of 45 cents on $2.69 billion.
CSX's return on invested capital could also improve as the railroad moderates its capital spending due to excess locomotive capacity and spending on the installation of positive train control system declines, Chamoun argued.
Despite all that, why the downgrade?
Chamoun said that the stock's run-up in valuation has given it a more balanced risk/reward proposition for investors.
"Near-term pressures from an oversupplied trucking market remain elevated, economic tailwinds are expected to remain moderate, and the pace of cost savings is likely to decelerate vs. 2016 levels," he added.