UNP's revenues should continue to benefit from strong pricing, reflecting both solid yield improvement and higher fuel surcharges. The company has the opportunity to reprice an additional 6% in 2008. This should lead to revenue growth in 2008 on the order of at least 6% year over year.

The company is taking a number of steps to jumpstart efficiency, which has led to improvement in the operating ratio. The results of UNP's Customer Inventory Management System (CIMS) have been very encouraging: a 25-40% decrease in inventory, dwell times improvement of 20-25%, and customer switching performance improvement of 35-50%.

The slowing macroeconomic environment in the U.S. is expected to have a negative impact on topline revenue growth for UNP during 2008. Negative mix is expected to hurt revenue growth as the company's business continues to shift to lower yield energy and intermodal, away from higher yield industrial products. Interest expense should also prove a headwind to earnings growth.

Core Labs Strength Compelling

Core Laboratories, N.V. (CLB) posted solid operational results for the second quarter. The company achieved historical quarterly highs for revenue, while its operating margins increased 300 basis points from the year-earlier level to a record 28%, driven by the successful introduction of new technologies and services, further penetration into additional fields, as well as through higher margin contracts.

We continue to like the company for its leadership position in the reservoir optimization niche, global footprint, and deep portfolio of proprietary products and services, thereby providing it with a very strong leverage to the current oilfield cycle.

Additionally, the company's global footprint and strong existing relationships in all major hydrocarbon-producing regions of the world give it a competitive edge over its peers. We see significant upside in the stock from current levels, particularly following its recent sell off (the stock is down more than 20% in the last few weeks).

During the second quarter, Core generated $39.9 million in free cash flow. Capital expenditures for the period were $8.0 million, up from $5.1 million in the prior year's second quarter. The company expects full year capex to be in the $25 million to $30 million range. At the end of the quarter, the company had $54.6 million in cash.

Our unchanged $155 price objective reflects 2009 P/E and EV/EBITDA multiples of 20.6x and 14.0x, both well within historical trading ranges. Core Labs valuation premium relative to the group is justified given its leading position in the reservoir optimization niche.

Whole Foods: Some Perspective

The Federal Trade Commission's (FTC) case against the Whole Foods (WFMI)/Wild Oats acquisition was misguided from the start.