Ackman had pushed for replacing Green with Hunter Harrison, former CEO of Canadian National Railway Co. (NYSE: CNI), but following the coup Ackman now said not to expect a coronation, “We’re going to do a proper job, we’re going to meet all the candidates and do it the right way.”

Canadian Pacific’s problems, at least according to Ackman, are due to high operating costs and he wants to reduce those costs. Ackman’s stated goal is to lower CP’s operating ratio — that is cost as a percentage of revenue — from around 80% to 66%. That would match the operating ratio at Canadian National, Harrison’s former company. Most of the credit for CN’s success, however, is attributed to Harrison’s predecessor.

CP’s main problem is that it operates mainly in western Canada in a nasty climate with difficult topography. The company hauls mainly commodity minerals and is captive to swings in the market for those minerals. Lowering costs won’t be easy once the workforce is trimmed.

CP’s ability to compete with the likes of Union Pacific Corp. (NYSE: UNP), CSX Corp. (NYSE: CSX), Burlington Northern Santa Fe (BNSF), owned by Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A), and Norfolk Southern Corp. (NYSE: NSC) is dubious, given that CP is much smaller than any of these and that the only likely merger possibility is Kansas City Southern (NYSE: KSU). A potential merger between Canadian National and BNSF was squashed by regulators in 1999, so a tie-up with one of the larger railroads is unlikely.

What is likely is that Ackman has shaken up sleepy Canadian companies and shareholders. This was Canada’s first big, public battle over corporate direction and many observers believe that it’s just the beginning.

Who could be next? A good bet might by phone maker Research in Motion Ltd. (NASDAQ: RIMM) whose recent struggles are well documented.

CP did not get much of a share price boost yesterday, closing at $75.07 in a 52-week range of $44.74-$79.91. The stock is inactive in pre-market trading this morning.

Paul Ausick

CSX reported revenues of $2.97 billion, better than the consensus estimate of $2.91 billion and up 5.7% compared with the same period a year ago. EPS came in at $0.43 compared with a consensus estimate of $0.38. Other US carriers Burlington Northern Santa Fe, owned by Berkshire Hathaway Corp., Canadian National Railway Ltd. (NYSE: CNI), Canadian Pacific Railway Ltd. (NYSE: CP), Kansas City Southern (NYSE: KSU), Norfolk Southern Corp. (NYSE: NSC), and Union Pacific Corp. (NYSE: UNP) are still to come. Here’s a look at what analysts expect.

Burlington Northern’s revenues and earnings are reported with Berkshire Hathaway’s later this quarter. Year-to-date, petroleum carloads are up 45% while coal loads are down -6%. Other gains are autos, up 13.6%, while intermodal traffic is up just 1.15%.

Canadian National Railway Ltd. (NYSE: CNI) is expected to post revenue of $2.27 billion and EPS of $1.02, an increase of 13% over the same period a year ago. The company reports earnings on April 23rd.

Canadian Pacific Railway Ltd. (NYSE: CP) is expected to post revenue of $1.32 billion and EPS of $0.78, a whopping 310% increase over a year ago. The company put out a preliminary estimate of EPS at CDN$0.83 earlier this month. Canadian Pacific reports earnings on Friday.

Kansas City Southern (NYSE: KSU) is expected to post revenue of $543.24 million and EPS of $0.72, a 24% increase over the same period a year ago. The company reports earnings on April 24th.

Norfolk Southern Corp. (NYSE: NSC) is expected to post revenue of $2.75 billion and EPS of $1.12, an increase of 12% over last year. The company reports earnings on April 24th.

Union Pacific Corp. (NYSE: UNP) is expected to post revenue of $4.98 billion and EPS of $1.63, an increase of 26% over the same period a year ago. The company reports earnings tomorrow.

Expectations are for rail stocks are high and, based on the gain reported yesterday at CSX, it looks like those hopes are about to be realized.

Paul Ausick

The company’s traffic in March was down -13.6% year-over-year and down -9.2% for the quarter compared with the same period a year ago. CSX Corp. (NYSE: CSX), Union Pacific Corp. (NYSE: UNP), Norfolk Southern Corp. (NYSE: NSC), and Kansas City Southern (NYSE: KSU) have not released numbers yet, but CSX and Union Pacific report quarterly earnings next week so we should know more then.

The decline at Genesee is virtually entirely due to a -42.7% drop in coal shipments in March and a -41.7% drop in coal shipments for the quarter. According to the Association of American Railroads’ latest traffic report, year-to-date coal shipments are down -10.2% on US railroads.

That’s not the largest percentage drop among freight types, but coal represents the largest volume of traffic on the nation’s railroads. US railroads have hauled nearly 200,000 fewer carloads of coal this year than they did last year. Put this down to the lowest natural gas prices in a decade.

The big gainer is petroleum products, which has risen 28.7% year-to-date, to nearly 120,000 carloads, up from about 93,000 a year ago. This is the effect of rail shipments from the Bakken shale fields of North Dakota and Montana, where there isn’t enough pipeline capacity to transport the oil to markets. But the total number is barely 10% of the coal volume.

Genesee’s shares closed up about 2.5% yesterday at $53.55 in a 52-week range of $44.38-$66.83. Shares are inactive in the pre-market this morning.

Paul Ausick

Apollo Group Inc. (NASDAQ: APOL) Raised to Market Perform at FBR.
Exelon Corp. (NYSE: EXC) Raised to Buy at Jefferies.
The Great Atlantic & Pacific Tea Company, Inc. (NYSE: GAP) Cut to Sell from Hold at Citigroup.
JDS Uniphase Corporation (NASDAQ: JDSU) Raised to Overweight at Piper Jaffray.
Kansas City Southern (NYSE: KSU) Cut to Neutral at UBS.
Melco Crown Entertainment Ltd. (NASDAQ: MPEL) Maintained Overweight but Target Raised at Morgan Stanley.
NetApp, Inc. (NASDAQ: NTAP) Raised to Overweight at Barclays.
NRG Energy, Inc. (NYSE: NRG) Raised to Outperform at Oppenheimer.
Nike Inc. (NYSE: NKE) Raised to Buy at UBS.
NovaGold Resources Inc. (NYSE: NG) Started as Overweight at JPMorgan.
SodaStream International (NASDAQ: SODA) Started as Hold at Deutsche Bank; Started as Outperform at William Blair; Started as Neutral at JPMorgan.
OmniVision Technologies Inc. (NASDAQ: OVTI) Cut to Neutral at JPMorgan.
Under Armour, Inc. (NYSE: UA) Cut to Neutral at UBS.
Verigy, Ltd. (NASDAQ: VRGY) Cut to Hold at Stifel Nicolaus; Raised to Equal-Weight at Barclays.
Western Refining Inc. (NYSE: WNR) Cut to Underperform at RBC.

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JON C. OGG

Altera Corp. (NASDAQ: ALTR) Started as Neutral at Janney.
Arch Coal Inc. (NYSE: ACI) Cut to Hold at Citigroup.
CBOE Holdings, Inc. (NASDAQ: CBOE) Started as Hold at Jefferies.
Foster Wheeler AG (NASDAQ: FWLT) Raised to Buy at Goldman Sachs.
General Electric Co. (NYSE: GE) Reiterated Outperform and $22 target at Credit Suisse.
J.B. Hunt Transport Services Inc. (NASDAQ: JBHT) Started as Positive at Susquehanna.
Kansas City Southern (NYSE: KSU) Started as Positive at Susquehanna.
Netflix, Inc. (NASDAQ: NFLX) Cut to Hold at Jefferies.
Norfolk Southern Corp. (NYSE: NSC) Started as Positive at Susquehanna.
Patriot Coal Corporation (NYSE: PCX) Cut to Sell at Citigroup.
Salesforce.com (NYSE: CRM) Reiterated Buy and raised target to $158 at BofA/ML.
3M Co. (NYSE: MMM) Cut to Neutral at Goldman Sachs.
Union Pacific Corporation (NYSE: UNP) Started as Positive at Susquehanna.
United Rentals, Inc. (NYSE: URI) Started as Outperform and $30 target at Credit Suisse.
VIVUS, Inc. (NASDAQ: VVUS) Raised to Buy and target raised to $12 from $6 at BofA/ML (full details).
Xilinx Inc. (NASDAQ: XLNX) Started as Neutral at Janney.

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JON C. OGG

Genzyme Corporation (NASDAQ: GENZ) Cut to Market Perform at Leerink Swann.
IHS Inc. (NYSE: IHS) Started as Buy at Needham & Co.
Kansas City Southern (NYSE: KSU) Started as Overweight at JPMorgan.
Maxim Integrated Products Inc. (NASDAQ: MXIM) Raised to Strong Buy at Needham.
Petroleo Brasileiro (NYSE: PBR) Cut to Hold from Buy at S&P Equity (late yesterday).
Research in Motion Ltd. (NASDAQ: RIMM) Cut to Neutral at Baird; target cut to $70 at Raymond James; target cut to $90 at RBC; target cut to $65 at UBS; target cut to $100 at TD
Solar Capital Ltd. (NASDAQ: SLRC) Started as Outperform at BMO Capital
Tupperware Brands Corporation (NYSE: TUP) Raised to Overweight at JPMorgan.
Turkcell (NYSE: TKC) Raised to Neutral from Sell at UBS.
Vodafone Group plc (NYSE: VOD) Raised to Buy at Collins Stewart.

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JON C. OGG

Go through the list of the 20 least and most productive and give my take on what they have in common.

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The truckers are tracking well today though.  YRC Worldwide Inc. (NASDAQ: YRCW) is so leveraged to news in the transport space that its shares are up almost 17% at $3.56 on more than 13 million shares of stock.  Other truckers are doing well too. JB Hunt Transport Services Inc. (NASDAQ: JBHT) is at $32.36, up about 5.5%; Con-way Inc. (NYSE: CNW) is at $44.09, up about 4.7%; and Landstar System Inc. (NASDAQ: LSTR) is at $38.49, up almost 3%.

JON C. OGG
September 11, 2009

Kansas City Southern (KSU) Cut to Neutral at UBS.
Natural Resource Partners (NRP) Cut to Sell at Citigroup.
Nokia (NOK) Cut to Hold at Deutsche bank.
Stryker (SYK) Cut to Market Weight at Thomas Weisel.
Toll Brothers (TOL) Cut to Hold at Citigroup.

JON C. OGG

We have more details on why we like these over peers, but there are several suppositions in our opinions here. The time frame is by the end of 2010, which is meant to coincide with some form of economic recovery next year.  A number of the credit and financial issues facing the markets will be in place for the near-term or longer.  The other assumption used for choosing the stocks is a market bottom of roughly 600 on the S&P 500.  Unfortunately, there is also the added risk of energy costs and now a new emissions “cap-and-trade” tax to consider.

Continental Airlines  is our possible double stock pick of the major legacy airline carriers.  AMR Corp. (AMR) is too volatile in expectations, and the other legacy carriers have been involved in mergers that will take a long time to integrate.  Just for disclosure purposes, it is very possible that there is some home field turf advantage mentally as this is one of the biggest carriers in Houston (and has hub operations from NYC/NJ as well). The company has not been immune to wild fuel prices or to the recession, but it has been able to maintain its balance sheet better than many carriers.  It has fought the urge to merge on more than one occasion.  If another acquisition occurs in the legacy space in the next 18 months, it is likely that Continental would be the prey.  As with most airlines, you can pick apart the books and every item besides cash and debt is something that is up for interpretation.  It continues to add international routes and has slowed growth domestically and cut lower profit routes.  We also want to note that a recent crash in upstate New York was technically a crash of a partner rather than a company operated flight.  A double from lows would put this at $13.00.  We are very skeptical about  “analyst estimates” for any quarter (let alone 2010) but those estimates are still $4.65, and that is down from $7.00 less than 2 months ago.

i2 Technologies, Inc. (NASDAQ: ITWO) is a software company.  But it is a supply chain management software company that is involved in the transportation of goods.  It also serves aerospace, auto, chemicals, consumer, defense, energy, industrial, metals, pharma, technology and  telecom compnaies.  Ryder (see below) uses its system as well.  We featured this stock in our “Special Situation Newsletter” in late-January at $6.17 because this one has actually been a busted merger.  It has also been beaten up in the recession.  But this could actually be acquired when things normalize as Oracle, Microsoft, SAP, H-P, and others start looking for deals in the space.  Shares sit at $7.60 and a double would take it to $11.00 from lows.  Its 52-week high is $14.60 and this was a $20+ stock just two years ago.  i2 currently trades at under 2-times tangible book value (with low ratios of goodwill and intangibles), has manageable debt, and trades at well-under 1-times revenue.  Again, this is not a transportation stock in the absolute classic sense, but we can’t really think of it is a little software company that just writes lots of “1′s and 0′s” either.

Kansas City Southern (NYSE: KSU) is our possible double in the rail sector.  We could have probably just as easily picked Warren Buffett’s Burlington Northern (NYSE: BNI) or Union Pacific (NYSE: UNP), but Kansas City Southern seems to offer slightly more leverage compared with forward estimates and it has a smaller market cap of $1.35 billion and is  actively traded.  What makes this also more attractive for a NAFTA trade is that it has Mexican operations.  Whether that could be monetized outside of the company is something to debate.  In just the last 75-days it has seen its 2010 earnings estimates cut by 25% and that is after prior cuts before that.  A double in KSU from lows is technically just north of $26.00, and amazingly enough that would put the stock at less than half of its 52-week high of $55.90.

Overseas Shipholding Group Inc. (NYSE: OSG) is perhaps a riskier play than a good old fashioned shipper of goods across the high seas.  It transports crude oil and petroleum products.  It certainly has not been immune to the woes of energy nor the woes of international trade.  OSG also recently posted a loss although that was after goodwill charges.  Earnings from operations  in 2008 was listed as $10.65 EPS. up from $6.16 EPS in 2007.   If the economic recovery starts to be seen and this stock sees more action, then you don’t have to multiply a fraction of those numbers very often to still have a dirt cheap forward P/E ratio.   A double from recent lows for us is also still under analyst targets of today even after all the cuts they have made.   The analysts have also slashed 2009 and 2010 earnings in almost half just in the last 75-days and even more than that before.  A double from recent lows would put this stock at around $40.00, which is still less than 50% of its $87+ highs of 2008.  It also has a high dividend, although we are discounting that this analysis.  It has expanded into adjacent carrier markets so it is not a pure-play energy transporter any longer, although many still think of it as a black gold shipper.  We could have easily thrown a dart at DryShips (DRYS) or another much more leveraged player that could double in a month, but that isn’t our game.  Nordic American Tanker (NAT) is the go-to safe stock, but a call for a double there is not as likely considering its low leverage and that would be “too bullish” even in the game of picking companies which could double.

Ryder System, Inc. (NYSE: R) is a hybrid stock transportation stock that could double.  The company operates in three different segments of fleet management solutions, supply chain solutions, and dedicated contract carriage.  You have seen its trucks on the road and it also  operates fleets  for companies.  Where Ryder gets interesting is that it could double off of lows with an economic recovery, but there is also an asset and break-up play here in the story with the operating segments.  The current price is fine for its tangible book value, but we wish it had a lower debt level even if that is just an unfortunate twist to trucking and transport stocks.  Technically, Ryder has to only go to $38.00 to be a double from lows, but we are using the $20.00 mark of 5 trading days ago as the low.  So we would expect hat Ryder could hit $40.00 by the end of 2010.  This does get the stock above 10-times forward earnings of about $3.30 EPS, but that number for 2010 earnings has been cut down from $5.00 EPS in less than 90 days and even more than that before.  A price of $40.00 is barely more than half of its 52-week high of $76.64 and that would still be less than the average analyst target prices.  We considered YRC Worldwide (YRCW) for this pick, but it is so leveraged that it has already doubled and it is still much riskier in our mind.

Again, there are suppositions here and the time frame is out to the end of 2010.  But just to let you know how beaten up this sector, the Dow Jones Transportation Average is down over 50% from last year and it is so far under the 200-day moving average that these stocks on a rally or turn in the economy could move massively.  This is also (historically) the first group you get confirmation of a new market direction change.

JON C. OGG
March 17, 2009

• Apollo Investment (AINV) Cut to Neutral at JPMorgan.
• Baker Hughes (BHI) Cut to Underweight at Morgan Stanley.
• Canadian National Railway (CNI) Cut to Neutral at Goldman Sachs.
• Elizabeth Arden, Inc. (RDEN) Cut to Market Perform at Wachovia.
• Kansas City Southern (KSU) Cut to Neutral at JPMorgan.
• Palm (PALM) Cut to Neutral at JPMorgan.
• Polo Ralph Lauren (RL) Cut to Sell at Goldman Sachs.
• Red Robin Gourmet (RRGB) Cut to Equal Weight at Morgan Stanley.
• Smith International (SII) Cut to Equal Weight at Morgan Stanley.
• Teradyne (TER) Cut to Perform at Oppenheimer.

Jon C. Ogg
January 20, 2009