Tabell’s Market Letter – April 20, 1956

Walston &- Co.—-Inc, Members New York Stock Exchange NEW YORK PHILADELPHIA LOS ANGELES SAN FRANCISCO BASLE (SwH,Id) OFFICES COAST TO COAST CONNECTED BY DIRECT PRIVATE WIRE SYSTEM TABELL'S MARKET LEnER f..pril 20, 1956 1IESTERN PAC IFIC RAIIROAD CO. Current Price 72 /4 vies-tern Pacific, which has held in the Current Dividend 3.00 73-57 trading area for over fifteen Current Yield 4.1 months, is now shO'wing signs O'f a Funded Debt 42,859,000 Equipment Oblig. 15,099,933 CommO'n StO'ck 566,367 shs. PO'ssible nearby upside breakO'ut. This WO'uld be a very encO'uraging technical development and indicate an advance t a higher price plateau. Net per share, 1955 Net The long term grO'wth prO'spects O'f Wes ern -Pacific are-very impressive., Refl ing rapid develO'pment O'f PO'Pulation a Mkt.Range 1956-55 73 7/8-56 3/4 industry in the territO'ry served,reve e BefO're Sinking Funds. Earnings after S.F. were 6.86 in 1955 and 5.62 in 1954. grO'wth is well above that of Class I railrO'ads in the aggregate. Traffic vO'lume be subs tantial in the cO'm mO'nths, with the 40 million FO'rd ass bly plant at Milpitas, CalifO'rnia,(ne San Jose) and O'ther new industrial shippers affO'rding considerable business This grO'wth is expected to' continue and eventually tO'P the 59.2 millions 0' tO'tal revenue in 1953 generated by the ttnusual revenue bulge during the KO'r n hO'stilities because O'f movement of high-rated Government traffic. Total rev nues were 53.7 in 1955 and are expected-tO' be higher in 1956. I Largely serving as a bridgeline carrier to the Pacific Coast, the company O'perates 1200 miles of first-line track. The main line of 927 miles extends frO'm San FranciscO'-Oakland to a cO'nnectiO'n with the Denver & RiO' Grande I'lestern at Salt Lake City. vlhile this rO'ute is longer than the cO'mpeting 785 miles of Southern Pacific to' Ogden, 11estern Pacific's rO'ute thrO'ugh the Feather River CanyO'n crosses the Sierra Nevada at a lower eleva tiO'n and with less grades and. curvature. Western Pacific also has its Insi Gateway rO'ute with 107 miles 'O'f main line frO'm Keddie, California, to' Bieb , California, which cO'nnects the 'Santa at Stockton, O'ne of the Pacific CO'ast NO'rth-South systems. The traffic is almost entirely freight. Western Pacific O'peratE O'nly twO' passenger trains. One is the famous California Zephyr which operatE at a profit. The O'ther is a small RDC Budd Car which is run primarily for — railrO'ad personnel and operates at a loss. The freight traffic has been en- larged by an aggressive industrial department supplemented by acquiring lanc fO'r industrial purpO'ses to' attract custO'mers. This PO'licy has paid and is evidenced by the large number of plants lO'cating in San JO'se, StO'cktO'n, Sacramento, Pittsburgh, MO'destO' and O'ther lO'calities. Since cO'ming out of reO'rganizatiO'n in 194, the company has plO'ughed back intO' prO'perty O'ver 50 a share in excess O'f dividend payO'ut. This mO'dernizatiO'n prO'gram,which was stepped up when Mr. Fred Ihitman was installed as President in 1949, is expected to cO'ntinue. Just when it wilr be completed is difficult to' ascertain, but it should result in a sharp in- crease in earning PO'wer with 15 O'r 20 a share as a possible projectiO'n. PrO'gress has been substantial already. FO'r example, the signal prO'gram has been practically cO'mpleted. At a CO'st O'f O'ver 7 million, Centralized Traffi CO'ntrO'l has been installed frO'm Salt Lake City to' Oakland and a mO'dified C.T.C. has been installed on the San Jose branch to the FO'rd plant at Milpit s. Western Pacific will receive a tax benefit O'f apprO'ximately 5 – —. –millioIT' from the'reorganrzati-O'n'-ofcthe !5acramentO'-PO'rthern-Rwy -under- wh-ich Western Pacific will receive 75,000 shares of the subsidiary's stO'ck, its sO'le capitalizatiO'n in return for over 25 milliO'n securities in the O'ld cO'mpany.Just tc what years this tax credit will be allO'cated is nO't The stock, in my O'piniO'n,PO'ssesses considerable merit for inter- mediate and lO'ng term appreciation. \'lith the eliminatiO'n O'f the preferred stO'ck in 1954,further anticipated gains in earnings shO'uld result in a highe dividend payout.There is alsO' the lO'ng term speculative possibility that Western Pacific can sO'me time becO'me part of transcO'ntinental railrO'ad sys– – i tem.The technical pattern is very impressive.The upside PO'tential O'f the 73- 7 area is 105-115 fO'r the intermediate term.However,the brO'ad range in which stO'ck has held since 1951 suggests a much higher PO'tential over longer term. ThIS mnrket letter 'I not, and under no CirCumstances IS to he construed as, an offer to sell or 11 contmne-I! herem 15 not as to accuracy or completeness and the furmshlng thereof IS n01, 0 C ce. hy Wnl!.ton & Co Inc All e,,presslOns of opInion are subJect to change without notIce Walston & r;j;, IJ'IIQ/litt'Im1\' hll\e an mterest the SecUrltlC!! mentIOned herem. Thls market letter IS mtended and presented fo Sto kh c fiory on Id 0dayert t 0 hde re of may kt news and not a!! a complete analYSIS AddltlonlliwlormatlOn 1,I,1th respect to any seCUTltIes referred to herem Will be furnished upon request – w ,