Zacks Bull and Bear of the Day Highlights: BOK Financial, Arch Coal, Union Pacific, Norfolk Southern and CSX
CHICAGO, June 25, 2012 /PRNewswire/ -- Zacks Equity Research highlights BOK Financial Corp. (Nasdaq:BOKF) as the Bull of the Day and Arch Coal, Inc. (NYSE:ACI) as the Bear of the Day. In addition, Zacks Equity Research provides analysis onUnion Pacific Corporation (NYSE:UNP), Norfolk Southern Corp. (NYSE:NSC), CSX Corporation (NYSE:CSX).
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Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.
Here is a synopsis of all five stocks:
We have upgraded our recommendation on BOK Financial Corp. (Nasdaq:BOKF) to Outperform from Neutral based on the improvements in its credit quality trends amidst an economic recovery along its primary markets. The company's first-quarter 2012 earnings were well above the Zacks Consensus Estimate, aided by growth in net interest revenue as well as fees and commissions revenue.
It also reported growth in commercial loan balances and increased its quarterly cash dividend by a nickel. While a low interest rate environment and regulatory issues are the headwinds, we believe that its diverse revenue mix and favorable geographic footprint will back its growth.
Our six-month target price of $65.00 equates to 14.3x our earnings estimate for 2012. Combined with a quarterly dividend of $0.38 per share, this price target implies an expected total return of 21.2% over that period. This is consistent with our Outperform recommendation on the shares
Arch Coal, Inc. (NYSE:ACI) missed both our top and bottom line expectations in the first quarter of 2012, owing to increasing operations costs and lower domestic sales. We expect little abatement in the declining trend in the upcoming quarters.
Possible weakening of coal prices as cheap natural gas comes into play and continued regulatory pressures from various environmental organizations add to our negative outlook. Rising costs of industrial supplies and political as well as economic uncertainties are additional concerns.
Presently, the stock is trading at a discount to the peer group based on 2012 earnings estimates, though the trailing 12-month EV/EBITDA multiple is above the industry average. Our target price is $5.75, based on 1.9x trailing 12-month cash flow.
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Railroads Linked in Class Action
The District of Columbia (DC) court has granted class action status to a lawsuit charging major North American railroads for exercising pricing discretionary on fuel surcharges. A class action lawsuit would now imply that the railroads have to defend themselves from collective charges brought by a group of shippers under Federal Rules of Civil Procedure Rule 23 and 28 U.S.C.A. § 1332(d).
The U.S. district judge, Paul Friedman of the DC court, brought forward the case of eight shipping companies that accused major railroads of imposing a series of price increases between 2003 and 2008.
These railroads include Union Pacific Corporation (NYSE:UNP), Norfolk Southern Corp. (NYSE:NSC), CSX Corporation (NYSE:CSX) and Burlington Northern Santa Fe. These Class I railroads dictate more than 90% of the freight revenues in the industry. Shippers have been constantly targeting these railroads, accusing them of monopolistic practices.
The pricing practice of the U.S. freight railroads is a major cause of friction with captive shippers which move their products through rail and do not have effective alternatives. Since 1980, railroads have been enjoying significant pricing power based on The Staggers Rail Act that substituted the long existing Interstate Commerce Act of 1887. The Staggers Rail Act provided greater flexibility in respect of freight pricing with less regulatory constraints, more freedom in collective ratemaking as well as entry and exit of companies from the industry.
The Act allowed the rail industry to recover from its most unprofitable period since the Great Depression, when these railroads where exposed to stringent pricing regulation by Interstate Commerce Commission. Additionally, the rise in automobile and truck freight market largely dethroned the rail business. Hence, Staggers Act remains an important milestone in the history of rail industry for its recovery from a dark period.
However, over the past several years shippers are continuously struggling to put railroads under review for indulging in unfair pricing practices. This has not only affected the shippers through increased shipping costs, but is also hurting consumers. Customers have accused railroads of extracting more fuel surcharges from them as well as indirectly charging for other costs, increasing shipping cost by almost 100% since 2004, while shipping cost from other modes have only gone up 20%.
Studies show that rail pricing has dramatically shot up since 2004 and continues to increase, with average rise of approximately 4 to 6% per year. On the other hand, other modes of transportation like trucking and air freight have only risen by approximately 1-2%. Studies have also revealed that all major freight railroads' fuel surcharges exceeded by approximately $6.4 billion from the actual cost between 2003 and 2007.
Railroads lashed back arguing that despite the ongoing hikes, prices remain below the 1980 levels considering the economical factors. Further, they protest that fuel surcharges which are subject to adjustments depending on fuel price changes have not been successful in tapping rising fuel prices.
We believe that the issues between the railroads and shippers remain a long-standing battle. This will continue to be so as long as matters regarding price fixing by the railroads continue to be out of the realm of U.S. antitrust laws.
Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.
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