A Summary Of BMO Capital's Coverage On The Rail Sector

Analysts at BMO Capital Markets oversee a proprietary index called the "BMO Rail Demand Index" (RDI), which measures demand momentum for rail carloads.

As noted by BMO's Fadi Chamoun, the RDI historically led carloads by three to six months. The May reading of 44 is roughly in line with April's revised reading of 47, which suggests that "carloads should begin to stabilize later this year."

Coverage Universe

1. Canadian National Railway (USA) CNI (Outperform rated, $85 price target) is a best-in-class and industry-leader with superior operating margin and a "robust" outlook for organic growth over the medium term.

2. Canadian Pacific Railway Limited (USA) CP (Outperform rated, $200 price target) has a positive outlook given productivity gains and improving organic growth opportunities.

3. Union Pacific Corporation UNP (Outperform rated, $100 price target) will see "challenged" volumes in the near term but its medium-term outlook is "strong" with growth potential in autos, chemicals and intermodal.

Related Link: Kansas City Southern Still Citi's Top Pick In Rail

4. CSX Corporation CSX (Outperform rated, $29 price target) will benefit in 2017 through intermodal and merchandise segments and cost reduction opportunities.

5. Norfolk Southern Corp. NSC (Market Perform rated, $93 price target) faces a "favorable" outlook in the intermodal and merchandise segment and has "significant" cost improvement opportunities moving forward.

6. Kansas City Southern KSU (Market Perform rated, $94 price target) will only see "limited" growth across the company's target segments but faces a "robust" outlook for volume growth beyond 2016. However, current valuation "appears to capture this upside."