(The Associated Press circulated the following on June 18.)
NEW YORK — U.S. railroad stocks rose Wednesday, as several analysts suggested improving efficiency and strong pricing would keep the group’s earnings above water despite the impact of Midwest floods and the surging price of crude.
Union Pacific Corp., the nation’s largest freight railroad, on Tuesday blamed the two factors when it predicted it will report second-quarter earnings in the lower half of a previously issued range.
JPMorgan analyst Thomas R. Wadewitz said the reduction was “mild” considering the railroad’s main line through Iowa has already been closed for several days and is not expected to be fully operational for one to two more weeks.
Wadewitz lowered his second quarter earnings forecast for Union Pacific, Burlington Northern Santa Fe Corp., Norfolk Southern Corp. and CSX Corp. but said he does not believe the flood impact will drag on to the second half of the year.
“While the flooding will clearly hurt rail second-quarter earnings, the impact is largely temporary and does not meaningfully change the positive railroad pricing and earnings growth stories,” he wrote in a note to clients.
He holds an “Overweight” rating on Union Pacific and a “Neutral” rating on the other three U.S. rails he covers.
Morgan Keegan analyst Art Hatfield said he believes Union Pacific’s newest second-quarter forecast, although slightly lower, “reflects the strength of current rail operating environment,” suggesting that earnings would have come in at the high end or above the forecast if the flooding had not occurred.
“The railroads are doing a good job of absorbing higher fuel prices through pricing growth,” he said. “While fuel and severe weather will create some short-term headwinds for the railroads, we believe the long-term thesis remains intact.”
In afternoon trading, Union Pacific rose $2.85, or 3.9 percent, to $75.31. Burlington Northern added 80 cents to $103.01, and CSX gained $1.28, or 2 percent, to $64.65, and Kansas City Southern advanced 47 cents to $47.07.
Norfolk Southern declined 20 cents to $61.92.