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Burlington Northern Chugs Along
Burlington Northern Santa Fe Corporation (BNI) reported 2008 second quarter diluted EPS before nonrecurring items of $1.34, up 18% year over year and $0.04 above consensus, but $0.08 below our estimate, as expenses came in higher than expected.
As a result, we are cutting our 2008 EPS estimate to $5.95 from $6.05, in line with the company’s earnings guidance of less than $6.00 per share. Our 2009 EPS estimate remains $6.90. We are continuing our Hold on the shares.
Strong utility demand and strong corn and soybean exports are expected to boost revenues going forward. Given the shortage of railcars, we anticipate freight rate hikes in the year ahead. Going forward, revenues should benefit from fuel surcharges and rate increases, partially offset by significantly higher unhedged fuel costs and flat to modestly lower volumes. BNI recently increased its quarterly dividend by 25% to a $1.60 annual rate, providing a 1.6% yield.
At its current price, the stock is trading at par compared to the industry median P/Es for 2008 and 2009, but is trading well above the industry median on price/book. Moreover, BNI’s PEG ratio (P/E divided by the expected earnings growth rate) now matches the industry median. Accordingly, we believe the stock is fully valued. We set a six-month target price of $103, or 15X our 2009 diluted EPS estimate of $6.90.
Read the full analyst report on BNI
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| Market Summary | Jul 31, 2010 13:24 pm ET |
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