UBS: Burlington Will Miss Earning Estimates, Norfolk A 'Buy'

Includes: BNI, BRK.A, NSC
by: FP Trading Desk

The rail sector got some more help last week after Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) disclosed that its stake in Burlington Northern Santa Fe Corp. (BNI) grew from 11% to 11.5%.

Both Mr. Buffett and billionaire investor Carl Icahn disclosed stakes in large U.S. railroads in May. This trend, which has been evident all year, demonstrates how stocks can be impacted simply by who owns the shares, rather than the company’s earnings power and other fundamentals, says UBS analyst Rick Paterson.

However, it’s not all good news for Burlington. Mr. Paterson thinks the company will miss its earnings guidance of US$1.40 per share in the third quarter. The consensus estimates is US$1.41 and UBS forecasts US$1.37. While acknowledging that it is still early in the quarter and things could change, volumes so far are down 4.8%, compared to guidance of a 3% decline.
Mr. Paterson thinks Burlington will need to see a hot August, which will likely boost coal shipments, if it is to hit near-term financial targets.

Meanwhile, the analyst again recommended that investors buy Norfolk Southern Corp. (NYSE:NSC). While it continues to frustrate investors as both the cheapest stock in its industry and of 23 transportation stocks UBS covers, he thinks the challenges it faces will be overcome.