Thursday’s ETF To Watch: Dow Jones Transportation Average Index Fund

by on July 21, 2011 | ETFs Mentioned:

Although the economy still remains shaky thanks to debt worries in the U.S. and Europe, earnings season has started off pretty well for a number of companies. Apple thoroughly crushed estimates again after the bell on Tuesday while companies in the health care and banking segments have also put up solid numbers, leading some to believe that a corporate recovery is well underway. This was further confirmed by the robust report from railroad operator CSX which posted a 22% gain in second-quarter earnings when compared to the year ago period. Shipping volume was up slightly– by about 3%– suggesting that more goods are being produced and transported across the country, a positive development for trade. However, in order to confirm this trend, investors will likely look to the larger player in the space, Union Pacific, as they report earnings before the bell today. 

Union Pacific (UNP), is the largest publicly traded U.S. railroad company with a market capitalization approaching $50 billion. The company nearly doubles CSX in terms of market cap and has a more national focus for its rail network, suggesting that it may be a better barometer for freight demand across the nation, and especially for trade with Asia. The company is projected to post earnings of $1.58 a share on revenues of $4.736 billion, a modest increase from the previous quarter in which UNP had earnings of $1.40 a share on revenues of $4.18 billion [Use our Stock Exposure Tool to find all the ETFs that hold a specific equity].

In addition to the top and bottom line numbers, investors will likely focus in on how the company has integrated new members of its workforce into the fold and how sharply rising fuel costs have impacted profit margins. Many will also look to see how the flooding and other weather issues across much of the Midwest have impacted the company, as CSX– which is mostly an East Coast railroad– did not have to deal with these problems in its most recent quarter [ETF Plays On Planes, Trains, And Automobiles].

Thanks to this key earnings report, as well as CSX’s solid performance earlier in the week, investors should look for the Dow Jones Transportation Average Index Fund (IYT) from iShares to be in focus during today’s trading session. IYT devotes just under 11.4% of its total assets to Union Pacific, enough to put it in the top holdings spot. In addition to UNP, the fund also has several railroads in the top ten including Norfolk Southern and Kansas City Southern, suggesting that UNP’s results could have a large impact on the overall performance of the fund during today’s session.

Should UNP manage to beat earnings estimates and keep up with the pace set by its rival CSX, look for IYT to have a strong Thursday session. If, however, UNP disappoints investors or warns on guidance for the rest of the year, look for IYT to continue its recent downward trend and finish the day lower [see more charts of IYT here].

[For more ETFs to watch sign up for our free ETF newsletter.]

Disclosure: No positions at time of writing.