CSX (CSX) stands to gain from an improving industry cycle, but the positives appear to be reflected in its current stock price, creating an unfavorable risk-reward profile, Morgan Stanley said in a Thursday note.

The company's turnaround is going well, with a "decent" Q1 earnings beat and a modest increase to full-year guidance, Morgan Stanley analysts said.

The leadership team has successfully boosted operational efficiency, as well as built a pipeline of 600 new projects to fill new capacity, the analysts said.

CSX stock has been significantly outperforming peers year to date, with gains of 19% compared with the group average of 10%, and over the last 12 months, with gains of 55% compared with 26%, while its valuation is the most expensive in its group, according to the note.

Trucking is expected to increasingly challenge railroads in the current cycle, while other railroad firms, particularly Canadian ones, offer a better risk-reward profile, the analysts said.

Morgan Stanley downgraded the company's stock to underweight from equal-weight and kept the price target at $30.

Price: 46.14, Change: +2.96, Percent Change: +6.86