(Dow Jones Newswires circulated the following story by Elizabeth Souder on November 4.)
NEW YORK — UBS Warburg recommended investors buy several U.S. railroad shares on expectations that the improving economy will boost cargo volume, and on hopes that 2004 can’t be as bad as 2003.
UBS said Monday in a research note that it upgraded Union Pacific Corp., CSX Corp. and Norfolk Southern Corp. to buy from neutral. UBS didn’t upgrade Burlington Northern Santa Fe Corp. because of the weak business mix, but raised the price target by $2 to $33.
Railroad shares were mostly up early Monday, with CSX leading the group, up 2% at $32.45. Burlington Northern shares were down 0.4% at $28.82.
UBS said in the research note that improvements to the economy and railroad operations will likely drive railroad shares higher.
“Things can only get better” in 2004, after railroads in 2003 suffered through high fuel prices, a drought that hampered agricultural shipments, a poor coal market, substandard operations, and the absence of an intermodal peak season.
So far, railroad share prices haven’t improved along with the rise in economic indicators. UBS said that is probably because industrial production hasn’t risen yet. But once it does, the beefed-up production should drive railroad volume higher.
Further, UBS said, fuel prices are likely to fall next year. And after operational problems embarrassed managers this year, improving operations has become an urgent matter, UBS said.
“Some bad things will no doubt happen in 2004, but the sector would be hard pressed to experience a worse run of luck/judgment,” UBS said.