Railroad stock dive, hit by farm sector slump
CHICAGO (Reuters) - U.S. railroad shares took a dive on Thursday, driven down by a sector-wide farming-related stock slump and fears over the state of the embattled U.S. economy.
"With agricultural stocks in free-fall and a weakening of the labor picture adding to fears of a broader slowdown, shares of railroad companies had an especially bad day," Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Conn., wrote in a note to clients.
In late afternoon trading on the New York Stock Exchange, shares in No. 1 U.S. railroad Union Pacific Corp (UNP.N) fell more than 12 percent, while No. 2 operator Burlington Northern Santa Fe Corp (BNI.N) was down more than 7 percent.
The rails were driven down as sinking commodity prices, along with doubts about a government rescue package for the U.S. banking system and fears of a recession hit agribusiness shares such as Deere & Co (DE.N), Archer Daniels Midland Co (ADM.N) and Bunge Ltd (BG.N).
The major U.S. railroads have performed well in recent quarters, posting robust profits in the face of slowing U.S. economic growth and weakening freight volumes, thanks to strong pricing.
But concern and uncertainty about the economy outweighed the railroads' recent performance as investors headed for the exits.
"Transport stocks have dropped very quickly as people are concerned that the economy is being battered, which will slow the transportation of goods," said William Lefkowitz, options strategist at brokerage vFinance Investments in New York. "Companies like Norfolk Southern, CSX and Burlington Northern are getting beaten up."
Lefkowitz noted that, in the options market, some investors have been jumping on these companies put options, locking in protection for their stock holdings or looking for continued weakness in this area."
Despite concerns among some investors over whether the railroads can deliver strong profits as the economy weakens, UBS analyst Rick Paterson wrote in a research note that "we would argue the market continues to underestimate the sustainability of pricing."
"We still expect the group to rally during earnings season as pricing continues to defy economic gravity and EPS growth accelerates on the back of falling fuel prices," he added.
No. 3 U.S. railroad CSX Corp (CSX.N) and No. 4 railroad Norfolk Southern Corp (NSC.N) were off more than 11 percent and 13 percent, respectively.
(Editing by Andre Grenon)
