In a report published Friday, Bank of America analyst Ken Hoexter demonstrated a more bullish stance on transport stocks as negative incremental data is "beginning to subside," which has historically marked an "inflection point" over the past decade for the group.
According to Hoexter's proprietary data and surveys, rail carloads appear "primed to turn the corner" after being in negative territory since March. On a rolling four-week basis, rail carloads have rebounded from a -4.0 percent peak level at the end of May to nearly break even as of September 5.
Looking forward, carloads should continue to improve as coal, chemical, petroleum, auto and intermodal all appear to be posting improvements.
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Hoexter continued that the rail group is trading at 13.5x his 2016 earnings per share estimates, down from 18.5x at the beginning of 2015. As such, stocks within his coverage are attractive, especially following the group's 25 percent average pullback.
Meanwhile, Hoexter's proprietary bi-weekly Truck Shipper Survey Diffusion Index is showing signs of improvements. The index reflects "shippers view of demand over the next zero to three months" and has recently began building a positive base sentiment after declining sequentially in eight of the past 12 surveys, a period matched by the seven of eight sequential downticks in 2012.
Rating And Estimate Changes
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Shares of Canadian National Railway (USA) (NYSE: CNI) were upgraded to Buy from Neutral with a price target lowered to $64 from a previous $68.
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Shares of Norfolk Southern Corp. (NYSE: NSC) were upgraded to Buy from Neutral with an unchanged $90 price target.
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Shares of J B Hunt Transport Services Inc (NASDAQ: JBHT) were upgraded to Buy from Neutral with an unchanged $90 price target.
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Shares of Knight Transportation (NYSE: KNX) were upgraded to Buy from Neutral with a price target raised to $31 from a previous $30.
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Latest Ratings for CNI
| Sep 2015 | National Bank FInancial | Upgrades | Sector Perform | Outperform |
| Sep 2015 | Bank of America | Upgrades | Neutral | Buy |
| Sep 2015 | Raymond James | Upgrades | Market Perform | Outperform |
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