(Bloomberg News circulated the following on April 14.)
NEW YORK — Shares of Burlington Northern Santa Fe Corp. and other North American railroads fell after a JP Morgan Securities analyst cut ratings on three of the companies, saying profit margins may start to narrow next year.
“Rail valuations remain at a historical high,” New York- based analyst Gregory Burns said in a report today. Cargo capacity is growing faster than demand and the stock prices “will begin to compress as the market begins to anticipate peak margins in the 2006-2007 time period,” he wrote.
Burns lowered ratings to “neutral” from “overweight” on Burlington Northern, Norfolk Southern Corp. and Canadian National Railway Co., which have the industry’s highest profit margins. He said rail margins rose 1.1 cents per dollar of sales last year and may gain 1.4 cents this year before growth drops off in 2006.
Shares of Burlington Northern, the second-largest U.S. railroad by sales, fell $3.03, or 5.9 percent, to $48.36 at 12:44 p.m. in New York Stock Exchange composite trading. Norfolk Southern, fourth biggest in the U.S., dropped $1.66, or 5 percent, to $31.82. Canadian National, the largest in Canada, declined C$2.56, or 3.4 percent, to C$71.79 in Toronto.
The Standard & Poor’s rail index fell 4.8 percent. The index, which includes Burlington Northern, Norfolk Southern, Union Pacific Corp. and CSX Corp., through yesterday had gained 41 percent in the past 12 months. All of the railroads except Union Pacific, the biggest in the U.S., increased profit during the period by raising prices and carrying more freight.
All North American railroads except Omaha, Nebraska-based Union Pacific are expected by analysts to report first-quarter profits. Union Pacific has been hurt by delays, California floods and rising fuel prices.
Montreal-based Canadian National had the industry’s highest profit margin last year at 33 cents per dollar of sales, followed by Norfolk, Virginia-based Norfolk Southern and Fort Worth, Texas- based Burlington Northern.
Burlington Northern led the industry with a 10 percent rise in shipments last quarter, according to the Association of American Railroads trade group. Norfolk Southern was second with a 5.9 percent increase, as U.S. rail shipments rose 4.4 percent.