Morgan Stanley projects freight rail recovery
A Morgan Stanley investor briefing Friday suggested that freight rail is due for a near-term recovery.
The report noted a 'clear uptick' in volume in July, led by derivatives used by auto manufacturers — such as chemicals, metallic ores and metals — as well as grain. Morgan Stanley said a projected surge in traffic from auto production isn't likely to materialize until late August.
The report said rail earnings have hit their trough and that 2010 earnings projections are too low.
'Markets are underestimating railroad mid-cycle margins and operating leverage to a rebound in volumes considering recent productivity improvements and proof of pricing discipline,' the report said.
However, Morgan Stanley said that BNSF is unlikely to cash in on the near-term rebound.
'We see less incremental volume upside at (BNSF) given, 1) limited auto exposure, 2) the lapping of second quarter 2008 intermodal share gains, 3) the recent loss of (Hub Group) traffic, and 4) large intermodal exposure where volumes have been slower to recover as the consumer suffers,' the report said.