Wednesday, March 17, 2010

More Bullish Comments on Rail Volumes and the Economy

With the "consensus" view so squarely focused on a bearish outlook, I thought I would pass along these comments from Ken Hoexter, the transportation analyst at Merrill Lynch.

As I have mentioned in previous posts, I like Ken's work since he relies on the data to direct his stock recommendations rather than "gut" instinct.

I have added the highlights:

Carload volumes 330 bps above recently revised target
Union Pacific's carloads are up 11.4% quarter-to-date, 330 bps above our recently increased growth target of 8.1%, as 5 of its 6 commodity groups are significantly surpassing our targets. We recently increased our targets on 2/25/10 - Raise rail estimates; focused upside on UNP, KSU, and CSX, yet volumes continue to surpass our upwardly revised targets. We are encouraged by the continued strength in rail carloads, which are up more than 5% QTD for the industry, particularly as the recovery in volumes remains widespread. While rail stocks have posted solid gains year-to-date (UNP is up 15%), we believe the momentum driven by the secular pricing and margin improvement will continue to be compounded by the cyclical volume recovery.

Recovery in volumes remains widespread
Intermodal volumes are up 23.6% QTD, well above our 16.0% target, as restocking demand adds to UP's increased volume flows from Hub Group, which migrated its containers from BNSF's network at the end of 2009. Energy (coal) is down only 2.4%, 110 bps better than our prior target owing to colder than expected winter weather reducing high inventory levels. Industrial Products (-2.8% vs. our -6.0% target), Agriculture (5.5% vs. our 4.0% target), and Chemicals (12.9% vs. our 12.5% target) are also surpassing our expectations, while Autos (51.1% vs. our 52.0% target is just shy of our target).





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