Norfolk Southern Raised, Union Pacific Downgraded at RBC Capital

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By Sam Boughedda

In separate notes on Tuesday, RBC Capital analysts raised Norfolk Southern (NYSE:NSC) to Sector Perform from Underperform and cut Union Pacific (NYSE:UNP) to Underperform from Sector Perform.

The analysts also adjusted their price targets on the stocks, with Norfolk Southern's price target raised to $237 from $221 and Union Pacific's share price target cut to $187 from $200.

The analysts explained that the firm is upgrading Norfolk Southern due to solid operating trends relative to expectations, exiting Q3.

"Combined with a strong pricing environment, we believe the stage is set for EPS growth in the medium-term more in line with US peers. And given that the shares are trading toward the bottom of their relative range, we expect the market to reflect in additional upside for NSC going forward," wrote the analysts.

For Union Pacific, they said the downgrade is due to weak operating performance relative to expectations.

"The company has cut its O/R guidance each quarter this year and performance metrics have lagged those reported by peers, with trip plan compliance relatively flat q/q. We note that persistent network issues are also driving volume underperformance versus expectations. Our view is that network issues will cause EPS growth to lag peers in the medium-term, and with valuation elevated versus CSX and NSC, we see downside risk to relative share price performance," the analysts stated.