UBS is bullish on railroad stocks, and element of the cause is the modern uptick in coal production, which has been pushed by bigger natural gas prices and optimism bordering the election of Donald Trump.
In a note circulated March seventeen, UBS strengthened its acquire ranking and $288,five hundred price focus on for Warren Buffett’s Berkshire Hathaway, the guardian enterprise of Burlington Northern Santa Fe Corp. (BNSF), just one of America’s largest railroads.
BNSF has a sizable publicity to coal and stands to benefit from an improve in coal autos.
According to UBS:
BNSF’s revenues ended up down nine.nine% y/y in 2016 with that drop mostly due to decrease volumes in industrial merchandise (-fourteen.two% y/y) and coal (-seven% y/y). We are anticipating four.5% y/y advancement in the prime line at BNSF in 2017, in element due to the simple comp following a tough 2016, but also due to coal volumes rebounding.
Coal burn, or the rate at which coal is employed by electric power plants, was down double digits in the initial two months of 2016 but has had a solid commence to 2017, gaining six% in January and 1.5% in February. So considerably it can be up nine% yr-around-yr in the initial quarter of 2017.
Berkshire has received seventeen.58% considering that the election of Donald Trump, partly due to keeping its publicity to industrial firms. The broader S&P five hundred is up eleven.three%.