(The following story by Randolph Heaster appeared on The Kansas City Star website on October 13.)
KANSAS CITY, Mo. — For several months, it appeared that the railroad sector was recession-proof. As businesses moved more freight to rails from trucks when fuel prices soared, earnings and stock prices for most major railroads climbed the past few quarters.
But even railroads have suffered during the meltdown on Wall Street, as the stocks of Kansas City Southern and other carriers have taken a pounding the last three weeks.
After reaching $51.17 a share at the close of trading Sept. 19, Kansas City Southern’s stock went into a free fall, closing at a one-year low of $28.67 a share on Friday. That was a 44 percent drop. The stock prices of Union Pacific Corp. and Burlington Northern Santa Fe Corp. in the same period also dropped sharply — 24 percent and 20 percent, respectively.
But rail stocks on Monday bounced back, along with the overall market, and Kansas City Southern shot up 14 percent, closing at $32.72.
Some railroads last month revised upward their earnings forecast for the third quarter, an indication that business continues to hold up despite the overall economic slowdown.
Nevertheless, analysts said it could be a while before the rail sector rallies again.
Government intervention to rescue banks and investment firms worldwide is under way, but “even if the bailout is prompt and ultimately successful, the U.S. economy is still about to go down another gear, which reignites macro fear in the rails,” wrote UBS transportation analyst Rick Paterson in a report late last month. “So, bottom line: Earnings always matter, but it could be a few weeks before rail investors are rewarded for better numbers.”
Vicki Bryan, senior high yield analyst at Gimme Credit, a corporate bond research firm, said she expects Kansas City Southern to continue growing revenues, improving operating efficiencies and improving earnings. An upgrade in its credit rating should occur because the company has reduced debt the past two years, she said.
“We expect double-digit revenue growth and improving cash flow generation over the next year,” she wrote in a research report.
Kansas City Southern is scheduled to release its third-quarter financial report Oct. 28. Analysts on average are expecting earnings of 60 cents a share, which would be a 25 percent rise from the 2007 third quarter.
U.S. markets
Wall Street stormed back from last week’s devastating losses Monday, sending the Dow Jones industrials soaring 936.42 to 9,387.61. All the major indexes rose more than 11 percent.
A rebound was likely after eight days of precipitous losses that took the Dow down nearly 2,400 points, but no one expected this kind of advance. The Dow crushed its previous record for a one-day point gain, 499.19, set during the waning days of the dot-com boom on March 16, 2000.
Broader stock indicators also jumped Monday. The Standard & Poor’s 500 index advanced 104.13 to 1,003.35. The Nasdaq composite index rose 194.74 to 1,844.25.