Citi Initiates Coverage on the North American Railroads; Canadian National (CNI) & Norfolk Southern "Best of Breed"
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Citi analyst says, "Conventional wisdom sees rails as early cycle equities, as their largely fixed cost networks benefit from positive earnings leverage in the initial upward inflection following an economic slump. Yet with the current economic downturn’s depth and breadth unknown, we think it’s too early to go “allin” with a basket approach to railroads. Our below-consensus estimates argue for more conservative posturing in 2009.
"In times of uncertainty, we strongly believe culture is king and execution is everything. We initiate on the rails with a focus on quality and selective Buys on "best of breed" franchises Canadian National Railway (NYSE: CNI) and Norfolk Southern (NYSE: NSC), which we see offering the most defensive characteristics through the downturn and structural upside into the earlier stages of a recovery. We initiate with Holds on CSX Corp (NYSE: CSX), Union Pacific (NYSE: UNP), Burlington Northern (NYSE: BNI) and Canadian Pacific (NYSE: CP) as reasonable valuations should provide support."
Canadian National Railway Company (CN) is engaged in the rail and related transportation business. CN’s network of approximately 21,000 route miles of track spans Canada and mid-America, connecting three coasts: the Atlantic, the Pacific and the Gulf of Mexico.
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