(The Associated Press circulated the following on September 10.)
NEW YORK — A UBS analyst said Wednesday that a strong rally in shares of the two largest railroads is likely over the next three months, suggesting that low fuel prices and better-than-expected third-quarter results will drive the stocks.
Analyst Rick Paterson put “Short-term Buy” ratings on the stocks of Union Pacific Corp. and Burlington Northern Santa Fe Corp. He also upgraded his 12-month rating on Burlington Northern to “Buy” from “Neutral.” The analyst already held Union Pacific’s 12-month rating at “Buy.”
He suggested shares of both companies could be poised for a bounce of greater than 10 percent in the near future, as lower fuel prices are expected to push third-quarter earnings up past current expectations.
The rails will particularly benefit from the lower prices because the timing of their fuel surcharges can be delayed for two months or more, the analyst said. This means the rails are charging their customers much higher rates than the current price of fuel. Of course, this factor hurt the rails when fuel was rapidly rising.
He suggests both rails could increase their third-quarter earnings predictions before they report next month.
Shares of Union Pacific leaped $3.03, or 4.3 percent, to $73.81, and Burlington Northern gained $2.98, or 3.1 percent, to $99.44.