Top rail stocks to watch according to Jefferies analysis

Investing.com -- Jefferies has identified leading opportunities in the rail sector as volume momentum holds firm through the third quarter, despite near-term margin pressure from diesel price spikes. The firm highlights carriers with visible self-help initiatives and attractive multi-year growth potential as the industry benefits from structural truck-to-rail conversion.

Rail volumes remained firmly positive through the third quarter, with strength broadening across intermodal, merchandise, and geographies. Tighter truck capacity, high highway fuel costs, and solid service support continued to drive truck-to-rail conversion. However, September’s diesel spike created a renewed fuel price-cost lag, pressuring reported operating ratios and shifting more of the expected margin benefit into the fourth quarter.

Union Pacific

Rail volumes remained firmly positive through the third quarter, with strength broadening across intermodal, merchandise, and geographies. Tighter truck capacity, high highway fuel costs, and solid service support continued truck-to-rail conversion. Through week 39, total volume increased 6% at Union Pacific, leaving year-to-date growth at 3%. However, September’s diesel spike creates a renewed fuel price-cost lag, pressuring reported operating ratios and shifting more of the expected margin benefit into the fourth quarter.

CSX Corporation

Jefferies favors CSX on visible self-help and attractive multi-year growth. The firm expects CSX to deliver the strongest 2026 operating ratio improvement at approximately 330 basis points. Through week 39, total volume increased 4% at CSX, leaving year-to-date growth at 4%. Intermodal remained the primary driver, supported by resilient imports, tighter truck capacity, elevated highway fuel costs, and strong rail service.

Canadian Pacific Kansas City

Canadian rail ton-miles accelerated, with CPKC up 6% in the quarter, led by grain, metals and minerals, refined products, and selective truck-to-rail conversion. CPKC retains meaningful capacity and is operating at or near record efficiency levels, although fuel and other quarter-specific costs constrain near-term margin conversion.

Canadian National Railway

Canadian National’s rail ton-miles increased approximately 4% in the quarter, led by grain, metals and minerals, refined products, and selective truck-to-rail conversion. CN also retains meaningful capacity and is operating at or near record efficiency levels. The group now trades at approximately 19-22 times 2027 earnings estimates, with Canadian National screening as the least expensive on both years.

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