Insights into Burlington Northern Play

Burlington Northern has been one of Buffett's biggest plays (estimated stake of nearly 5 billion USD)

Came across an excellent analysis of Burlington Northern and wish to share with the rest of the readers

1) Company has bought back shares since 1998 at an average cost of 37.50 and are aggressive in buying back their shares.This year after 9 months 11 million shares were purchased at an average cost of 83.50 .the total shares outstanding is 351 million and the company is still buying of course Warren owns 17.2% of the shares and with these buybacks and his "permissionn" to buy up to 49% the amount of "available shares" are decreasing and BNI is using "free cash flow" to keep buying back the stock.

2) Company's EPS only rose a couple percent in 2007 because of "fuel hedges" which helped them in 2006. This years EPS of about 5.20 should increase by 7-10% over the next 5 years in pricing power and increased volume growth and the EPS show grow by 9% or more when factoring in the repurchases .

3) companies revenues are about 35% consumer and container boxes and automotive 20% coal 25% industrial and 20% agricultrual .Look for consumer and coal to be higher growth areas. Of the earnings 50% come from international products and 50% are domestic

4) company had "excess capacity" for along time now they finally have pricing power

5 ) Bottom line is the company has 29000 miles of track which costs about 3 million dollars per mile to "replace" . which totals about 87 billion

Land which is on the book at 1.7 billion dollars has a "conservative"average cost basis of about 50 years ( some of the purcahses are on books pre1900) at a 3% annual appreciation the land is probably worth more than 8 billion and chances are that number is UNDERSTATED

The terminals probably are worth another 3 billion conservatively and the long term debt which includes leases is about 11 billion .So 100 billion dollars of assets -11 billion of debt is about 89 billion dollars.The whole company can be purchased for under 28 billion at todays closing price


the entire transcript of the message post can be found here