(The Associated Press circulated the following article by James M. Amend on June 15.)
NEW YORK — Shares of the nation’s top railroad companies continue to rebound after a sharp pull back in recent weeks, a reflection of Wall Street’s confidence in their prospects for the longer term.
Share prices of the group were active again Wednesday, led by Burlington Northern Santa Fe Corp., which rose 89 cents to $72.58 in afternoon trading on the New York Stock Exchange.
Wall Street’s optimism arrives along with inflation concerns. On Wednesday the government said core inflation, which excludes energy and food prices, was up a higher-than-expected 0.3 percent. That could pose a risk to the rail industry’s intermodal business, which carries items like electronics and automobiles.
Top railroad stocks gained 30.1 percent in 2005 and this year they are up 13.1 percent. But since the S&P 500 peaked on May 5, analysts observe shares of the nation’s six major railroads are down an average 14 percent versus a 5.5-percent drop in the S&P.
But on Wednesday, Gary Chase of Lehman Brothers raised his second quarter earnings outlook on four of the top six railroads, led by CSX Corp., which he hiked to $1.18 per share from $1.11.
Chase cited higher volumes, specifically intermodal, which is up more than 4 percent in the quarter to date for both Burlington Northern and Norfolk Southern Corp. It’s up nearly 3 percent at Union Pacific Corp.
Chase, however, is more skeptical than his colleagues about the longer term and left 2007 estimates unchanged.
“We believe railroad earnings will be more sensitive in this cycle to the broader economy,” he said in a research note.
JP Morgan’s Thomas R. Wadewitz said on Monday the pullback doesn’t account for upcoming pricing gains booked into multiyear contracts. He also sees newly visible network operational improvements and opportunities to reduce costs.
Coal volumes in May at Norfolk Southern were up 7.9 percent versus the same period in 2005. At Burlington North, agricultural volumes were up 26 percent and coal volumes rose 13.5 percent.
Wadewitz moved second quarter earnings estimates for the railroad group above consensus. He gave the biggest boost to Burlington Northern, to $1.28 per share from $1.18.
Merrill Lynch’s Ken Hoexter on Tuesday raised second quarter estimates for Burlington Northern, Union Pacific, CSX and Norfolk Southern by a collective 4 percent. He added that he sees “sustainable double-digit earnings growth characteristics for the next few years.”
Union Pacific President and Chief Executive Jim Young said recently, “We continue to see solid demand, which should support future volume.”
In afternoon trading on the NYSE, shares of Canadian National rose 45 cents to $41.92, CSX gained 29 cents to $61.40, Norfolk Southern rose 88 cents to $49.34 and Union Pacific was up 78 cents to $87.29.