Photo: AP Photo/M. Spencer Green
UBS added rail operator CSX to its Key Call list, a group of 17 top stocks that includes Apple, Ford and Google.At first glance, this is unexpected as analysts across the Street remain mixed on whether the U.S. will be able to coast on to recovery. Railroads face huge cyclical headwinds from macroeconomic movements — manufacturers can cut transport needs rapidly when demand flattens or declines.
UBS’s base-case scenario calls for modest GDP growth. However, they still like it in a recession. Here’s what they say:
Resilient pricing strength will provide a lift to earnings regardless of the strength of the overall economy. The stock is an excellent combination of both offence and defence. In a modestly rising economy we believe CSX can generate double-digit earnings growth driven by pricing gains, operating leverage benefits and share buybacks. In a mild recession, CSX can still grow earnings from pricing strength that is mostly independent of the economy, falling fuel expenses, and efficiency gains that can offset modest volume declines.
UBS has a $30 price target on the stock.
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