Why CSX Shares Might Slow Down

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Last Friday, Citigroup downgraded railroad operator CSX (NYSE: CSX  ) from buy to neutral, triggering investor concern that the stock's 2013 rally might be overdone.

So what: Along with the downgrade, analyst Christian Wetherbee planted a $27 price target on the shares (representing just 5% worth of upside), suggesting that CSX is more or less fairly valued. While Wetherbee remains upbeat on CSX's near-term volume growth, he believes that that stock might not be factoring in longer-term headwinds.

Now what: Citigroup now expects CSX to earn $1.95 per share in 2014, versus the consensus estimate of $2.00. "Our fair value range reflects a solid outlook for its non-coal franchises, particularly Merchandise and Intermodal segments, which continue to post strong volumes at +5.9% and +5.6% in 3Q," noted Citigroup, "but with long-term challenges persisting in both domestic and export coal, as well as 2014 headwinds from liquidated damages and real estate gains comparisons ... we believe that CSX may be challenged to hit the lower bound of its 10-15% EPS CAGR target in 2014." With CSX shares up about 35% from its 52-week lows and trading at a P/E in line with the industry, I'd have to agree with Citi that those risks aren't fully being discounted. 

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