Railroads: Despite Deteriorating Freight Volumes, Long Term Outlook Favorable - Raymond James

Investors and analysts have had a great time talking about green shoots since the March run-up, but it seems Canada's railroads have not benefited from all the positive energy as freight volumes continue to hold the sector back.

Steven Hansen, Raymond James analyst, said in a note Thursday:

We knew that North American freight volumes were bad. But we clearly underestimated the extent to which they would continue to deteriorate through the second quarter of 2009.

Canadian freight volumes are down 24.6% year-over-year in the past 11 weeks, while North American volumes are also down a comparable 21.8% in the same time period.

All 20 North American freight categories reported by the American Association of Railroads have recorded year-over-year declines during this period. In particular, metallic ores and metals, motor vehicles, and non-metallic minerals and products have all dropped more than 25%, Mr. Hansen said.

With these factors in mind, along with rising oil and foreign exchange assumptions, Mr. Hansen has dropped both Canadian Pacific Railway Ltd. (CP) and Canadian National Railway Co. (CNI) to Market Perform from Outperform while reducing target prices to C$48 and C$52 (from C$50 and C$55).

He said:

Notwithstanding these revisions, we continue to view the long‐term outlook for the Canadian rails very favorably. We will be watching closely for additional evidence that suggests the bottom for freight volumes is in, so that we can return to a more constructive view.

Comments

[ain't no fo...:]

Gee, a sell side analyst talking his book!

What will they come up with next?

Jul 02 12:30 PM