'Rail-mageddon' Nears, Warns Credit Suisse

In a report published Tuesday, Credit Suisse analyst Allison Landry lowered her earnings per share estimates on rail companies for the second time this quarter.

Landry stated in a research note at the end of May that while consensus estimates have been "steadily" coming down over the past few weeks, Street expectations were still too high. The analyst noted that volume comps will "continue to be tough" for the remainder of the second quarter and beyond.

"While there could be a slightly further move downward in the stocks as second quarter consensus numbers reach what we believe to be a more accurate level, we also feel that we are closing in on the point of capitulation for the rails," Landry wrote in her note in May. "Indeed, significant underperformance in the group already reflects investor sentiment that in our opinion has reached peak bearishness. However, things may not fully turn until we move past Q2, which is the toughest quarter in 2015 from a year over year comp perspective, while volumes still need to reach a point of stabilization."

Related Link: Bank Of America: Demand Soft For Big Rail Carriers

Landry continued in her new research notes that the thesis outlined in May is unchanged and continues to represent her core views. However, the analyst suggested that the recent decline in share prices seen in the group suggests "we are even closer to the bottom," although "not quite there yet."

Landry updated her price targets for several names and justified the move based on higher costs (across the board) and weaker volume trends (in some cases) in the second quarter.

Revised Price Targets:

• Shares of Canadian National Railway (NYSE: CNI) remain Neutral rated with a price target lowered to $61 from a previous $62.
• Shares of Canadian Pacific Railway Limited (NYSE: CP) remain Outperform rated with a price target lowered to $192 from a previous $200.
• Shares of CSX Corporation (NYSE: CSX) remain Outperform rated with a price target lowered to $36 from a previous $37.
• Shares of Kansas City Southern (NYSE: KSU) remain Neutral rated with a price target lowered to $94 from a previous $101.
• Shares of Norfolk Southern Corp. (NYSE: NSC) remain Neutral rated with a price target lowered to $87 from a previous $92.
• Shares of Union Pacific Corporation (NYSE: UNP) remain Outperform rated with a price target lowered to $111 from a previous $118.