TALKING POINT/CONRAIL <CRR>
Private investors eagerly snapped up
shares of Consolidated Rail Corp, the biggest initial stock
offering in U.S. history, but some analysts warned they could
be in a for a bumpy ride at least in the near term.
    Analyst James Voytko of PaineWebber Group Inc believes some
investors who bought at the offering price of 28 dlrs will be
tempted to sell. The shares climbed 3-3/8 to 31-3/8 by midday.
Voytko said profit-taking pressure could become severe at the
35 dlr level. Others say Conrail, a combination of previously
bankrupt railroads, has good long term potential.
    "Conrail is in the best position to weather the current
tremendous price competition in the transportation industry in
general," said Drew Robertson, analyst at Atlantic Systems Inc,
a research firm.
    "It will survive and do damn well," said another analyst
who declined to be identified. He noted that Conrail's freight
trains serve heavy industry including steel and autos in major
U.S. cities in the northeast U.S. and midwest.
    Robertson noted that Conrail's traffic is less dependent on
coal than other railroads based in the east. He expects Conrail
to earn 2.85 dlrs per share in 1987.
    Voytko of PaineWebber sees another problem six months down
the road when more than 10 mln Conrail shares will be
distributed to current and former employees. He believes many
of these indivdiuals will be inclined to sell the stock.
    Robertson says it's hard to determine the psychology of the
average employe, but even if a lot of stock is sold, it would
would not hit the market as one big block. He doubts it would
create a big downward push on the price.
    "It's hard to call," said the analyst who requested
anonymity. In some cases employe loyalty may motivate
individuals to keep their shares, he said.
    Steven Lewins, analyst for Citicorp Investment Management,
believes the key to Conrail's long term outlook is how it is
able to invest surplus cash. He expects Conrail to earn 3.00
dlrs per share this year, flat in comparison with 1986, but by
1991 the picture could change dramatically if money not needed
for rail operations is invested wisely.
    By 1991, earnings could reach 4.30 dlrs per share, Lewins
said, factoring in reinvestment of free cash flow at
conservative rates.
    He believes motor freight will be one area of
diversification Conrail will explore.
    Elizabeth Dole, U.S. Secretary of Transportation, whose
department was responsible for the sale of Conrail, noted that
Conrail is required to reinvest in its rail system and cannot
defer necessary maintenance.
    For the historic offering of Conrail shares, Dole visited
the New York Stock Exchange and was photographed on the floor
wearing a locomotive engineer's cap, which she presented to
Stanley Crane, Conrail chairman and chief executive.
    The U.S. government is expected to receive about 1.88
billion dlrs for Conrail after factoring in underwriting fees
and other adjustments.
    The possibility of a recession at some time in the next
five years is another issue troubling some investors.
    Lewins says revenue-ton-miles, which he believes will climb
from 68.7 mln miles last year to 69.5 mln this year and 70.5
mln in 1988, will grow to 71.5 mln in 1991, but in a recession
year, perhaps 1989, the figure could dip to 64.2 mln.
    On the revenue side, he believes revenue per ton-mile will
be 4.7 cts in 1991, little changed from present levels and
exactly the same as in 1981.
    "Their basic business isn't going anywhere," he says,
explaining why emphasizes investment of cash flow.
    Voytko thinks Conrail can remain profitable in a recession
year. He points out his firm, PaineWebber, is not forecasting a
recession in any specific year, but as an example a 1990
recession of modest degree could knock earnings down to 2.20
dlrs per share. He estimated 3.00 dlrs per share this year and
3.35 dlrs next year. His 1988 figure reflects mostly a lowering
of the tax rate to 34 pct from 40 pct this year.
    Voytko believes the Conrail shares merit purchase at the 26
dlr level.
    Goldman, Sachs and Co was lead manager for the offering. A
total of 148 firms took part in the U.S. syndicate.
 Reuter
