March 21, 2019 / 2:39 PM / 8 months ago

BUZZ-US railroads becoming a better cash flow story, says Cowen

** Norfolk Southern, Union Pacific and Kansas City Southern could see strong cash flow this year and the next as they adopt precision scheduled railroading (PSR), says Cowen and Co

** Brokerage estimates the trio should see cash flow rising by mid-single digits in 2019, and double-digits in 2020 on a capex drop that accompanies PSR, along with additional capex cuts on ending start-up costs for positive train control (PTC)

** Using capex changes at CSX Corp and CP Rail as they implemented PSR, Cowen calculates discretionary cash flow at UNP, NSC and KSU could top the brokerage’s 2020 estimates by 5 pct, 10 pct, and 12 pct, respectively

** Says so far it seems PSR progressing successfully at the trio and “at a more measured and likely less disruptive pace than previously seen at CSX”

** On PTC, Cowen says PTC capex should fall, “perhaps even substantially,” in 2019 and 2020, and decline to a minimum for maintenance from 2021

** Cowen rates UNP, NSC and KSU ‘outperform’ but continues to favor NSC and UNP as its top transport picks

** UNP, NSC and KSU are up 17-20 pct YTD, more than the 11-17.5 pct gain in CSX, CP Rail and CN Rail; the NTM P/E for the group is between 15.7x and 17.9x -Refinitiv data (Reporting by Savio D’Souza)

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