In a note to clients on Monday, Spracklin shifted away from a negative rating on Norfolk Southern (NSC) due to improving operating trends, strong pricing, and an attractive valuation as he believes it is near a bottom. As such, he upgraded the stock to Sector Perform from a prior Underperform and hiked his price target to $237 from a prior $221.
For Union Pacific (UNP), these trends are all seen as weakening in contrast to Norfolk Southern.
“We are downgrading UNP today due to weak operating performance relative to expectations,” Spracklin said. “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.”
He added that he expects EPS reports in coming quarters to remain behind beeps like CSX Corp. (CSX) and Norfolk. Further, constrained volume growth and potential for continued operating ratio deterioration accentuate downside risk. As such, Spracklin downgraded the stock to Underperform from Sector Perform and cut his price target to $187 from a prior $200.