MW FDX, Norfolk Southern, CSX Canadian Pacific downgraded on tariff woes

By Steve Gelsi

Analyst sees tariffs causing short-term inflation and they may plunge Canada and Mexico into a recession

Loop Capital analyst Rick Paterson cut his rating on Canadian Pacific Kansas City railroad to sell from buy on Monday as he downgraded stocks from seven companies in the railroad and delivery business due to "inflationary" trade tariffs imposed by President Trump.

"We've eliminated all positive ratings in the transportation sector and recommend our clients don't add to positions until the dust settles," Paterson said in a research note on Monday. "Here's the problem with tariffs: even if they work the benefits are all back-end loaded, whilethe pain is up front and immediate."

Canadian Pacific Kansas City Ltd.' stock $(CP)$ (CA:CP) was down 5.3% in premarket trading, as part of an overall selloff in many stocks expected to be hurt in the short term by Trump's trade policy.

Loop Capital dramatically reduced its price target for the Canadian-listed shares of the railroad company to C$70 from C$125.

"Nobody should be surprised given Mr. Trump telegraphed his trade policy 117 times at each of his campaign rallies," Loop analyst Paterson said in a research note. "Voters bought the ticket, and now we all have to take the(inflationary) ride."

Along with Canadian Pacific, Paterson downgraded Canadian National Railway Co. $(CNI)$ (CA:CNR) and Union Pacific Corp. $(UNP)$ to sell from hold.

He cut ratings on FedEx Corp. $(FDX)$, as well as railroads CSX Corp. $(CSX)$, Norfolk Southern Corp. $(NSC)$, and GXO Logistics Inc. (GXO) to hold from buy, and kept UPS Inc. $(UPS)$ as a hold.

Higher prices will reduce demand for goods and cool the economy, which in turn impacts the transportation sector, Paterson said.

While any longer-term benefits to the U.S. from the tariffs remain uncertain, the move will immediately impact prices.

"If this tariff policy is maintained for more than a few months, it will likely put Canada and Mexico into recession, given the U.S. accounts for 75% and 80% of their exports, respectively," Paterson said. "All of the transportation companies we cover will be hurt by a simultaneous economic contraction north and south of the border, further exacerbatingweakness in cross border flows."

He said Trump's decision to impose tariffs on Canada as "particularly absurd" because "most countries would kill to have one as friendly, stable, reasonable and reliable as Canada."

The tariffs could also make Mexico less stable, writing, "it's not in America's interest to risk having a failed state on its doorstep."

UPS's stock fell 1.8% in premarket trading, while FedEx dropped 2.8%, CSX moved lower by 2.4%, Canadian National Railway declined by 2.9%, Union Pacific fell 3.3%, and GXO Logistics moved lower by 2.8%. Norfolk Southern was not trading in the premarket.

Also read: U.S. booze stocks tumble as Canada retaliates against Trump tariffs

-Steve Gelsi

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February 03, 2025 08:22 ET (13:22 GMT)

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