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Deutsche Bank analysts upgraded Norfolk Southern (NYSE:NSC) shares to Buy from Hold and downgraded Union Pacific (NYSE:UNP) to Hold from Buy in a note Thursday.
The analysts revealed the firm started to get more positive on NSC mid-last year, stating in August that it was “intrigued with the company’s new operating plan,” which had the “potential to show tangible improvement in the coming months.”
“Those tangible improvements have come, with NSC’s average train speeds up 16% since that time and average dwell down 7%,” they said. “This improvement serves as a relief valve for capacity that should allow for less supply constraints on growth that defined much of the prior two years.”
Deutsche Bank also notes that NSC has made “significant progress” on adding train and engine employees and taken the “bold action to bring in new operating talent.”
On UNP, the analysts said the firm had been disappointed with the company’s execution throughout 2022, with Q4 being “particularly weak.”
“We note, fuel adjusted costs increased by $1.1 billion last year on a $1 billion increase in fuel adjusted revenue. And 4Q was even worse, with fuel adjusted costs up $216 million on fuel adjusted revenue that was about flat year over year,” the added.
The analysts said this signals plenty of opportunity for improvement, but they do not sense a notably different approach from management to drive meaningful change.
