(Reuters circulated the following article on March 16.)
CHICAGO — Shares of railroad companies advanced on Wednesday, a day after Union Pacific Corp. raised its outlook, leading Merrill Lynch to boost prices targets on five stocks, citing strength in the sector.
Merrill Lynch raised targets on five “buy-rated” railroad stocks and increased 2006 and 2007 earnings-per-share estimates by 2 percent to 4 percent for the group.
The sector was led by a 6.1 percent gain in Union Pacific stock, which hit an all-time high.
“We believe the rails continue to be solid investments as earnings upside surprises continue to boost consensus estimates quite handily,” Merrill Lynch analyst Ken Hoexter said in a research note.
North American railroads have seen demand and revenue jump over the past two years, due in part to the increased need to haul imported goods, coal and other materials. U.S. railroads have even been able to increase prices due to the demand.
Union Pacific on Tuesday raised its quarterly and full-year earnings forecasts, citing stronger-than-expected revenue from commodity shipments and margin improvements.
“We believe this is a clear signal that the rail industry continues to benefit from record pricing gains and subsequent earnings leverage, which should drive upside across the group,” Hoexter said.
Stocks have tended to lead earnings growth in the sector in the past four years, but have upside potential, he said.
Merrill Lynch raised its price target on Union Pacific to $102 from $95; Burlington Northern Santa Fe Corp.
Among the railroad stocks, Union Pacific was up $4.98, or 5.8 percent, in early afternoon dealings at $90.19; Burlington Northern up $4.12, or 5.4 percent, at $80.62; CSX up $2.16, or 3.8 percent, at $58.71; Norfolk Southern up $1.88, or 3.7 percent, at $53.37; and Canadian National Railway up 64 cents, or 1.4 percent, at $46.13, all on the New York Stock Exchange.