bni

Warren Buffett's (NYSE: BRK.A) decision to buy the 77.4% shares of Burlington Northern Santa Fe (NYSE: BNI) that he did not already own, for $100 each in cash and stock, is like an early holiday present for BNI shareholders.

And first recommended on April 30, 2009 at a price of $67.81, that means BNI shareholders will earn a cool 47% for their April-bought shares. Not bad for a six-month investment. I would say BNI probably was worth 10-15% more, but BNI shareholders will take the immediate pay-off, just the same.

Buffett's move also reflects his stance toward U.S. railroads, a sector I like, too.

Yesterday it was announced very loudly that "my pal Warren" was going to acquire the 77.4% of the Burlington Northern Santa Fe (NYSE: BNI) railroad, that Berkshire Hathaway (BRK.A) does not already own, for $100 per share, offering about a $24 premium to Mondays closing price.

Talk about putting your money where your mouth is -- yikes! Buffett has gone all in, betting the economy is healing, and silencing anyone that questioned his integrity or motives for cautious optimism saying it was all talk!

U.S. stock futures climbed on Wednesday morning, ahead of the decision by the Federal Reserve on interest-rate and monetary policy. This afternoon, the Fed will give its outlook on the economy and the corresponding policy it's taking. It is widely believed the Fed will not raise rates. Meanwhile, more earnings and economic data are on tap.

Unlike this morning, traders appeared more cautious Tuesday, as the Fed began its two-day policy meeting. Stocks ended mixed and fairly unchanged following news that Warren Buffett's Berkshire Hathaway (NYSE: BRK.B) has decided to buy Burlington Northern Santa Fe (NYSE: BNI) in a deal worth $44 billion and as Johnson & Johnson (NYSE: JNJ) announced a 6-7% workforce reduction.

A major acquisition is coming to light this morning, as Berkshire Hathaway (NYSE: BRK.A, BRK.B) has announced that it is acquiring Burlington Northern Santa Fe (NYSE: BNI). The deal calls for BRK to dish out $100 per share in cash and stock for the 77.4% of BNI shares that BRK doesn't already own. The deal will cost BRK $44 billion.

The acquisition gives us a glimpse into the mind of the Oracle of Omaha, BRK's CEO Warren Buffett. He feels that the "country's future prosperity depends on it having an efficient and well-maintained rail system." Buffett is betting that railroads are going to do well, which would stem from prosperity in the American economy.

Berkshire Hathaway (NYSE: BRK.A) announced the acquisition of Burlington Northern (NYSE: BNI) for $100 per share in cash and stock for a deal worth $34 billion. BRK.A is purchasing the remaining 77.4% of outstanding BNI stock its does not own. BNI November option implied volatility is flat at 36, December is at 35; verses its 26-week average of 37 according to Track Data, suggesting non-directional price fluctuations.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

CSX (NYSE: CSX), a railway entity similar to companies such as Burlington Northern Santa Fe Corp. (NYSE: BNI), Norfolk Southern Corp. (NYSE: NSC), and Union Pacific Corp. (NYSE: UNP), saw a nice bid during Tuesday's after-hours session. The market enjoyed CSX's Q3 earnings report so much it sent shares of the company higher by 2.6%.

What was so good about the data? According to TheStreet.com, CSX made 74 cents per share from continuing operations. The analyst community was counting on 71 cents per share. Perhaps more importantly, management seemed pretty upbeat on the state of the economy. Like a lot of other pundits, CEO Michael Ward thinks that the recession will eventually start to wane, and that we may have already experienced the bottom of the cycle.

"We rate both Burlington Northern Santa Fe (NYSE: BNI) and Canada's CN Rail (NYSE: CNI) as buys," says analyst Tom Slee.

The contributing editor to Gordon Pape's Internet Wealth Builder suggetss, "Burlington Northern remains my number one pick in the sector but CN is excellent value at these levels." Here's his bullish review.

"Burlington Northern Santa Fe had a relatively good second quarter, posting earnings of $1.18 a share. This is down from $1.34 in 2008 but beat the consensus estimate of $1.01.

"Year-over-year revenues fell 26% although this was offset by a 33% reduction in costs as a result of tighter controls and lower energy prices.

Rail carloadings for agriculture and coal are down, as is containerized trade traffic, and the near-term does not look bright, but you'd never know it from Burlington Northern Santa Fe's stock price trend.

Institutional investors have bid-up shares in anticipation of U.S./global recoveries. Therefore, I'm reiterating my Buy rating for Burlington Northern (NYSE: BNI), first recommended on April 30, 2009 at a price of $67.81. However, there is caveat: wait for a pull-back to about $75, and hope the market gives you the chance at a decent entry point.

CSX (NYSE: CSX), a railway company whose peers include Burlington Northern Santa Fe (NYSE: BNI), Union Pacific Corp. (NYSE: UNP) and Norfolk Southern Corp. (NYSE: NSC), reported earnings for the second quarter on Monday after the bell. Net sales declined 25%, and earnings from continuing operations declined 24% to 72 cents per share.

Declines are never nice, but for a company like CSX, it's only to be expected. The recession continues to have an impact on operations. Management said that volumes decreased; it also mentioned how CSX is doing its best to run as efficiently as possible to combat the dropping top line. Maybe it's working out, because according to Reuters, the company beat Wall Street estimates by 10 cents.

In running a very tight stock screen recently for value plays Burlington Northern Santa Fe (NYSE: BNI) showed up on a list of 14 stocks. Interestingly all the large railroad stocks did. This reminded me of several stories I have done on the subject, the most recent being Chasing Value: Watch BNI -- the heck with Citigroup.

To summarize, about six weeks ago a Citigroup (NYSE: C) analyst declared it was time to sell the stock when BNI was trading in the mid $60s -- I said investors should do the opposite, it was a great value. Friday the stock closed at $76.98. Even at this price it is a value and ever more so with oil prices steadly creeping up.

Is it time to ride the rails? In Gordon Pape's The Internet Wealth Builder, analyst Tom Slee reaffirms his buy rating on Burlington Northern Santa Fe (NYSE: BNI), his top pick in the sector.

"Burlington Northern is my preferred choice in the railroad industry. At first glance, Burlington Northern had a particularly bad first quarter.

"Profit was $0.86 a share, down sharply from $1.30 a share the year before. However, when unusual items such as an unfavourable coal rate decision are excluded, operating earnings amounted to a much more acceptable $1.13 a share, well above the 96c analysts were looking for.

Time was – not long ago – the railroads were the darlings of Wall Street. Extraordinary demand for commodities from emerging markets and strong international trade increased demand for rail transport.

But then came the winds of September/October 2008: a financial crisis and the ensuing global recession stopped both commodity demand and trade nearly cold, and Wall Street soon soured on the railroads as well, including Burlington Northern Santa Fe (NYSE: BNI). The Street drove UNP's shares down to about $50 per share from over $114 in less than eight months. Warranted? Hardly.

Last year most analysts proclaimed that the market would be up by the years end. The only accurate part of the analysis was that the year did end; although not well.

When Burlington Northern Santa Fe (NYSE: BNI) was trading at $114 analysts were silent. When it dropped below $100 and then $90 a share I do not recall anyone writing anything accept that "my pal Warren" was buying. At $80, and then $70 not more than a whisper.

Then yesterday when BNI was trading in the mid $60's (it closed at $64.97) Citigroup (NYSE: C) Investment Research analyst Matthew Troy cut shares of Burlington Northern Santa Fe Corp. and Canadian Pacific Railway Ltd. to "Sell" from "Hold."

CSX (NYSE: CSX), a railway company whose colleagues include Burlington Northern Santa Fe (NYSE: BNI), Norfolk Southern Corp. (NYSE: NSC) and Union Pacific Corp. (NYSE: UNP), issued its Q1 report on Tuesday after the bell. As one might imagine, there was a drop in both sales and net income. The top line declined by 17%. The bottom line, on an adjusted basis (taking into account an item from last year's similar quarter), dropped 23% to $0.62 per share.

The economy is still taking its toll, obviously. Volumes were down during the quarter. However, the market sometimes cares about only one thing: beating expectations. CSX actually beat the analyst expectations of $0.51 per share. This significant difference led traders to push shares of CSX higher by 6.5% during Tuesday's after-hours session.

Burlington Northern Santa Fe (NYSE: BNI - option chain) stock is falling today after the Surface Transportation Board ruled that the company overcharged two Western power companies for coal shipments. The agency gave BNI a $345 million penalty. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on BNI.

This morning, BNI opened at $61.70. So far today the stock has hit a low of $61.20 and a high of $63.98. As of 11:45, BNI is trading at $62.45, down $1.26 (-2.0%). The chart for BNI looks neutral and S&P gives BNI a 3 STARS (out of 5) hold ranking.