Burlington Northern Santa Fe CorporationBNI

Morningstar Rating

Stock Research and Analysis

by Keith Schoonmaker

On Nov. 3, 2009, Berkshire Hathaway BRK.B announced its intention to acquire the remaining outstanding shares of Burlington Northern Santa Fe for $100 per share, which is a 31.5% premium to Monday's $76.07 closing price and 11.1% greater than our $90 Read more

Bulls Say

BNSF's tracks afford access to attractive, defensive segments. It hauls cargo rich in commodities with less cyclical demand, like agriculture products, coal, and containers ferrying imported goods.

Compared with trucking, shipping by rail is less expensive over long distances, is 3 times more fuel-efficient per ton shipped, and does not contribute to highway crowding.

BNSF's coal franchise will stay strong since PRB coal is less expensive (delivered pricing per million BTUs) than coal from other regions and costs less than one fifth the price of natural gas.

From 2003 to 2007, BNSF steadily improved intermodal productivity by increasing units per trailer train to 120 from 103 and units per stack train to 243 from 196.

BNSF's Southern Transcon route is mostly double-tracked, so westbound and eastbound lanes stretch nearly from Los Angeles to Chicago. This boosts network velocity and improves safety. Read more

Bears Say

Unlike trucking firms, railroads must purchase and maintain their road. Required maintenance capital expenditures consume more than 15% of revenue annually.

Railroads face risk of regulation on several fronts, including safety bills and STB permissible rate calculations.

BNSF has modest exposure to the construction and building products markets (8% and 7% of consolidated revenue, respectively), but significant downturns in these cyclical sectors will restrain growth.

Its purchase of the Dakota, Minnesota & Eastern Railroad gives Canadian Pacific CP an option to compete in PRB coal, though it has not yet determined if it will undertake this substantial investment. Read more

Strategy

BNSF will continue to focus on improving velocity (car miles per day) and efficiency (units per train). The firm plans to add intermodal capacity, increase coal volume using fewer but longer trains, Read more

Management

We award BNSF an A grade for its corporate-governance practices. During the tenure of CEO Matthew Rose and Burlington senior management, performance of BSNF and other rails has improved dramatically. While Rose serves as both board chairman and chief Read more

Profile

Fort Worth, Texas, based Burlington Northern Santa Fe is one of the largest railroad firms in North America. Its 40,000 employees moved freight over the firm's 32,000 miles Read more

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