Morgan Stanley Research analysts Wednesday issued an upbeat report “adjusting estimates higher” for freight railroad earnings, based on predictions of better-than-expected volume for the second quarter of the year, full-year 2010, and full-year 2011.
“Despite consensus revisions throughout the quarter, we believe rails remain positioned to beat consensus 2Q10 estimates,” Morgan Stanley Research analysts William Greene, John Godyn, and Adam Longson said in a note. Because of that, the trio said, “we are revising estimates across our rail coverage to account for recent traffic trends, management commentary, and updated guidance.”
The note said Class I railroads “are likely to see upside revisions driven by the following trends: (1) Volumes tracking better than expectations, (2) Operating leverage to recovering volumes, and (3) Sustained momentum on core price.”
The analysts said they “continue to favor rails” and, in particular, highlighted CSX, Kansas City Southern, and Union Pacific “as our picks.”