Zacks Industry Rank Analysis Highlights: Bear Stearns, CSX, Goldman Sachs, Lehman Brothers, and Union Pacific.

CHICAGO -- Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week's analysis include Bear Stearns (NYSE: BSC), CSX Corporation (NYSE: CSX), Goldman Sachs (NYSE: GS), Lehman Brothers (NYSE: LEH) and Union Pacific (NYSE: UNP). To see the Zacks Industry Rank and the trend in earnings estimates revisions for all 208 industry groups, visit http://at.zacks.com/?id=2563.

Zacks Industry Rank Analysis written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

Last week, three of the largest investment banking firms reported fiscal second-quarter results: Lehman Brothers (NYSE: LEH), Goldman Sachs (NYSE: GS) and Bear Stearns (NYSE: BSC). The results topped expectations, but the prices of the three stocks ended the week slightly down after some modest volatility.

There was not a single explanation as to why. LEH topped estimates by nine cents with profits of $1.69 per share. The results were six cents below the blowout first-quarter numbers, however, which sparked some concern among investors. Other traders wanted to see what Goldman was going to report the following day. GS topped expectations by 62 cents with profits of $4.78 per share. The quality of earnings were questioned somewhat because of a one-time sale of a power generation facility that resulted in a $700 million gain. BSC said on Thursday that it generated profits of $3.72 per share, 62 cents above expectations.

The overall state of the equity markets played a role. Stocks were down early last week before rallying on Wednesday and Thursday. LEH and GS reported on down days, while BSC was lucky enough report in the middle of a two-day, 300-point rally. The inability Lehman and Goldman Sachs to top extremely strong first-quarter results caused a bit of disgruntlement. There were also worries about the impact that market volatility and rising interest rates would have on the investing banking sector as a whole.

On the other hand, earnings estimates for all three firms were raised for this year and next - a very bullish sign in the face of lackluster price action. The latest consensus forecast for LEH calls for fiscal 2006 earnings of $6.46 per share and fiscal 2007 earnings of $6.71. These estimates represent one-week increases of three cents for both forecasts. In regards to GS, the consensus estimates are $16.67 for fiscal 2006 and $16.07 for fiscal 2007. These new projections represent increases of 39 cents and 20 cents, respectively. Estimates for BSC now stand at $12.78 for fiscal 2006 and $13.38 for fiscal 2007, representing increases of 13 cents and 17 cents, respectively.

Astute investors will notice that the revisions do not fully reflect the magnitude of the fiscal second-quarter surprises. This is partially due to the fact that not all of the covering analysts have adjusted their forecasts. Consensus estimates for both the third and fourth quarters have been ratcheted up, however, implying that analysts expect the positive earnings momentum to continue.

Although these investment banking firms have already reported results, second quarter earnings season does not officially kick off until July 10.

Among the stars of the second-quarter earnings season could be railroad companies, such as CSX Corporation (NYSE: CSX). Two of the 10 covering analysts have raised their quarterly and full-year estimates on CSX over the past 30 days, with one analyst adjusting his estimate within the past seven days. The current second-quarter forecast calls for profits of $1.12 per share - a penny above the month-old estimate. The current full-year forecast calls for profits of $4.34 per share, five cents above the month-old estimate. CSX is a Zacks #1 Rank stock.

Another standout within the Transportation-Rail group is Zacks #2 Rank stock Union Pacific (NYSE: UNP). On Friday afternoon, UNP issued a press release stating that it set a new all-time record for carloadings in a seven-day period. This was the first-time that the company has set such a record outside of its peak season. UNP is handling a 57% increase in ethanol shipments and is experiencing record coal volumes.

To see the complete analysis and listing of the Zacks Sector Rank and Industry Rank scores, go to http://at.zacks.com/?id=2563.

(a) The Zacks Rank is assigned to companies with earnings estimates made available by brokerage analysts. The Zacks' database contains earnings estimates for approximately 4400 companies.

About Zacks Industry Rank and the Zacks Rank

Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 ("Strong Buy") to #5 ("Strong Sell"). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.

Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." A $10,000 investment in the Zacks Rank list made in 1988 would now be worth $1.82 million - equivalent to a 33% annualized return! During the 2000-2002 bear market, Zacks #1 Rank stocks gained 43.8%, while the S&P 500 tumbled 37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 129.7% annually (+5.2% vs. +11.9%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.

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(a) The Zacks Performance Rank performance is the total return of equal weighted simulated portfolios consisting of those stocks with the indicated Zacks Rank net of fees. Results reflect the reinvestment of dividends and other earnings. Simulated results do not represent actual trading and may not reflect the impact that economic and market factors might have had on decision-making if an adviser were actually managing a client's money.

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