Tabell’s Market Letter – January 19, 1948

Technical Maket Action From n technical point of view, the chart patterns of individual ril issues have dynamic potent) al possibilities for longer term llorket appreciation. In an uttenpt to rationalize these technical indications with the fundaental bnckground of eurnint;s and financial position, I hnve been exa;Jininc sone earnings und balance sheets of vari0us rai roads coing back over c long pEriod. of tine. While not pretending to be c rc.ilroad ana.lyst, I was much ir..pressed. by what I found. It is eenerally knovm that earnings,. startinl; in 1941, stared a. renarkable comeback fron the depressed level of the' '30s. I,bile rail earnings today ,re below the sensational figures of the \lar years, they t.re v8ry substantinl l.n rtlation to current prices of rail securities. Based on 1947 barninGs, 'Jany rails are today selling at only three to six times earnings. If the recent freight incfeas is tcken into consideration, a projection of present earnings into 194 indicates thut meny rails are tode.y selling at only one anc'. one-ho.lf to four tines possible 194 ee.rnin;s on 1947 voluoe of traffic. \,hile the earnings picture is possibly recognizeu, 1 wonder if L1any people realize the trmendous improveIent in the financial condition of mny of the roads. In me.ny instances, inciVidual railroads are in ubout the best financ12.1 condition in alr.lost forty years as far 125 vorkinl; capital and fundeu debt ure concerned. Take Illinois Central, for exatlple, which we revieweel rGcently in comparing the 1947 situation ,lith thp.t of 1937. In this insknce let us go back to 1929 when Illinois Central sold in a price rnge of 153 1/2 – 116 anel was payinc a 7.00 elividend. At the year-end of 1929, current assets were 37.4 million and current habilities were 31.2, lO6.vin n workinG capital of 6.2 million. At the year-end of 1946, current assets Vlen 101. 3 million end current linbiliti;jfl; were 59.6, leaving a Vlorkine capital of 41. 7 million or more than six tir.es the workin capital of 1929. At the end of 1929, cash QUd equivlent was 7.8 mlllion, At the end of 1946, cusn und equivalent was 66.6 rillion or over eight tines the cr.sh and ,quiva, lent of 1929. But even more anzing is the fact thct while the cush and working capital has been improving, the debt has been drastically reduced. At the end of 1929, funded debt vms 366.4 million and fixed c!Jc.rges were 18. million. At the end of 1946, funded debt was 241.9 mElion ,no fixed charges vlere 11.4 lJillion. The 1947 bulance sheet is not yet available but it is recBonable to assume at least about the sume i f not a slightly improved condition. Equ&lly f,'vcrble comparison with past talao e a h e eta could be shovm with othf-r un-reorganized rails in our recomr.,enoed list, namely, Atchison, Topeka and Santa, Kansas City Southern, Northern Pacific, Southern Pacific ano Union PacifiC. The reco;mnended issues in the reorganized rail group, Chicago & Northwestern, Denver & Rio Grande, Gulf,Mobile & Ohio and Seaboard Air Line have lhderfone drastiC recapitalization v.'i th the old cotlmon and preferred stocks wiped out. Their fixed charges have been eVGn more drnstically reduced than in the un-reorganized croup. AllcghrulY Corp. is a railroac holdinf, company that has dao reduced its lone term debt. Advise purchase of recoml;rended rails on price 'Ienkness in the general l,arket. The market sold 10Vier on Monday and, at the day's loVi of 175.21, practically reached the December loVi of 175.21 but held bove the September low of 174.02. The re.ils at 49.85, were considerably c.bove the December low of 46.00. A penetr.tion of the S8ptember low would indicate, .s noted two wec,ks aco, a decline to the upper pc.rt of tl.le 170-160 buyin rrulGe. Such a decline, i f it occurs, would be disappointing fror.! a timing point of view, but it would not alter the long term pattern. In fact, it would enlarge the potential base mId sugest ultimately higher levels than nov, indicated. January 19, 1948 EDMUND i/. TABELL Closings SHIELDS & CmllPANY Dow-Jones Industrials Dow-Jones Reils Dov-J ones 65-Stock 175.95 50.09 63.0 The oprnfons expressed in thts JeHer are the personal interpretation of chart. by Mr. Edmund W. Tabell and are not presented as the opinions of Shields. Company. –