(The Chicago Tribune posted the following article on its website on March 16.)
CHICAGO — Railroad stocks chugged solidly ahead Wednesday after Union Pacific Corp., the nation’s largest railroad, raised its quarterly earnings forecast, and CSX Corp., the third largest, was upgraded by a UBS AG analyst.
The Dow Jones transportation index, which contains both companies, jumped 97.06 points, or 2.2 percent, to 4591.76, its largest gain in a month. A measure of railroad stocks in the Standard & Poor’s 500 shot up 5.7 percent. The nation’s railroads have benefited from increased shipping of commodities such as coal.
After the close of trading Tuesday, Union Pacific predicted higher first-quarter earnings because of strong demand for commodity products and robust profit margins. The railroad expects commodity revenue to grow 17 percent in the first quarter compared with the same period last year, with per-share earnings between $1 and $1.10.
Previously, Union Pacific had predicted revenue would grow 15 percent, with per-share earnings between 80 cents and 90 cents. The Omaha-based company also increased its earnings outlook for the full year to between $4.80 and $5 a share, up from $4.60 to $4.80 a share.
Analysts surveyed by Thomson Financial were looking for earnings per share of 89 cents for the first quarter and $4.79 for the year.
Wednesday, shares of Union Pacific jumped $5.04, or 5.9 percent, to $90.25
CSX stock surged $3.01, or 5.3 percent, to $59.56 after the Jacksonville, Fla.-based railroad was raised to to “buy” from “neutral” by UBS’ Rick Paterson, who predicted the stock may double in the next five years.
“It’s clearly desirable to own stocks that haul commodities,” he wrote in a research note to investors. He raised his 2006 earnings estimate to $3.77 a share from $3.70 and his 2007 estimate to $4.29 a share from $4.15.
The shares may climb to $70 in the next 12 months, Paterson forecast, and double by 2011 as increased cash leads to stock buybacks and dividends.
Other railroad stocks also advanced Wednesday. Burlington Northern Santa Fe Corp. climbed $4.80, or 6.3 percent, to $81.30. Norfolk Southern Corp. advanced $2.43, or 4.7 percent, to $53.92.