We are continuing our Hold on Burlington Northern Santa Fe Corporation (BNI), but increasing our target price to $110. BNI reported 2008 first quarter diluted EPS of $1.30, up 18% year over year and $0.08 above the $1.22 consensus and Zacks estimates, as revenues came in higher than we expected due to record quarterly revenue growth and volumes for Ag Products and Coal.
We are raising our 2008 diluted EPS estimate to $6.05 from $5.90, a bit higher than the company's earnings guidance of roughly $6.00 per share. Revenues should benefit from fuel surcharges and rate increases, partially offset by significantly higher unhedged fuel costs and flat-to-modestly-lower volumes. We believe BNI's $1.28 annual dividend is safe.
At its current price, the stock is trading at par compared to the industry median P/Es for 2008 and 2009, but is trading well above the industry median on price/book. Moreover, BNI's PEG ratio (P/E divided by the expected earnings growth rate) now matches the industry median. Accordingly, we believe the stock is fully valued. Our Hold recommendation is based upon a six-month target price of $110, or 16X our 2009 diluted EPS estimate of $6.90.
Read the full analyst report on BNI
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.