I pulled this off of my Sprint PCS phone last night while sitting in a boring gathering that I didn't want to be at. I'd link the article on the regular World Wide Web, but darned if I'll register with those guys for this information. What is typed below is excerpted---can't spell that today---from my little color LCD phone screen. It also dates from 24 March 2004, but that's OK.

Morgan Stanley analyst James Valentine upgraded two of the four major American railroads and downgraded the other two, ostensibly in earnings potential. However, Valentine also stated that he maintains his opinion that the North American railroad industry remains challenged as an asset-intensive, heavily unionized, semi-regulated industry.¹ His actions are taken, he said, in response to divergence in prospects for the sector. His research note stated the likelihood of seeing a "more clear divergence in each carrier's growth trajectory" in the remainder of 2004.

As a result, Valentine now considers Norfolk Southern Corporation (NSC) and Burlington Northern Santa Fe Corporation (BNI) as "overweight", up from "equal-weight". Conversely, Union Pacific Corporation (UNP) and CSX Corporation (CSX) have been downgraded from "equal-weight" to "underweight".²

That was part of a good week for Norfolk Southern's financial picture; earlier the Bear Stearns brokerage house had raised its evaluation of NSC to "outperform" its industry peers (i.e. UNP, CSX, and BNI). Bear Stearns says that NSC is positioned for "greater earnings leverage" in 2004, whatever that means.

Inasmuch as I'm a ruthless booster of Virginia's remaining railway, this is a good thing. Greater earnings won't necessarily lead to me being hired by the Norfolk Southern as a lobbyist or anything, but it might fatten the portfolio when I get around to buying fistfuls of NSC stock.³ More money for NSC is a good thing all around, and I'm glad to hear that the folks at 3 Commercial Place in Norfolk are being rewarded for efforts in business.

Tip of the Wisconsin hat to the management and labor of the Norfolk Southern Corporation. ¹ I would agree that the railroad industry is rather heavily unionized; a retired NS man---rest in peace, old friend---once stated to me that the railroads were the first industry to organize in this country, and I think he's probably right. He adamantly defended the right of labor to organize, and I don't necessarily disagree with him. Ideally, you don't need a union; management would be "good" to its employees, and the employees would be loyal and hard-working in return. Alas, one doesn't always get that---from either side---and so it's probably just as well that an essential tension exists between the people who hire & fire, and the folks who get hired & fired. Equality of bargaining power, I suppose. That being said, I don't get the sense that a lot of unions have realistic demands any more.

As for "asset-intensive", well, yes. They've a sprawling real estate base (i.e. the track) and the infrastructure (yards, locomotives, freight cars, etc.) necessary to handle the size and volume of freight traffic in this country also has to be large. This isn't Star Trek where one beams automobiles from Detroit to a distributor in Alabama; something's got to get them there over something. Methinks that the bean-counter doth protest too much. There's only so much that can be cut on a railroad before you start eating the seed corn.

With regards to regulation, boo hoo. Some people just can't be satisfied.

² You may wonder why the railroad components are not the named industries. I've only had two classes in corporate law, and so Professor Bainbridge might be angry at my explanation, but here goes: These corporations are holding companies in essence, which oh-by-the-way own a railroad, along with other business components. Off the top of my head, each of these railroads are wholly-owned subsidiaries of their parents(?) and thus would follow current thought and regulations on how to handle such things.

³ In my ideal scenario, 3 Commercial Place would call my attorney (or broker, whatever) and worry about a takeover attempt. I then of course would sign that pleasant little agreement saying that I have no intentions at this time about a takeover. Call it irrational investing; I'd buy stock simply because I like railroads and I trust NS management to keep running a profitable railroad. This is incredibly unlikely because I'll never be rich enough to buy the pre-requisite amount of stock (either 3%or 5%, last time I checked) to trigger such a concern. One can dream, though.

Posted by: Country Pundit at 02:15 PM | No Comments | Add Comment
Post contains 765 words, total size 5 kb.