Tags: CSX | full | steam | ahead

CSX Full Steam Ahead on Rail Business Recovery

By    |   Wednesday, 11 Jul 2012 10:06 PM

CSX (CSX) management is full steam ahead in the rail business, despite a soft market for coal, a big part of its shipping revenue, and a generally weak recovery. Analysts concur, offering a load of buy recommendations despite the staggering U.S. economy.

CSX provides rail-based transportation services, including traditional rail service and the transport of intermodal containers and trailers. CSX’s principal operating subsidiary, CSX Transportation, provides a link to the transportation supply chain through its approximately 21,000 route-mile rail network, which serves major population centers in 23 states east of the Mississippi River, the District of Columbia and the Canadian provinces of Ontario and Quebec.

The network has access to more than 70 ocean, river and lake port terminals along the Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes and the St. Lawrence Seaway. The company’s intermodal business links customers to railroads via trucks and terminals. CSX Transportation also serves thousands of production and distribution facilities through track connections to approximately 240 short-line and regional railroads.

During the 2011 year, CSXT’s transportation services generated $11.7 billion in revenue and served three primary lines of business: merchandise (roughly 54 percent of revenue), coal (nearly 32 percent, and intermodal (12 percent).

Other units of the holding company provide intermodal shipping terminals, distribution services, terminal services, and technology services. The company also operates a real estate company, although not as part of operating activities.

“Looking ahead, the economic backdrop remains favorable as most major economic indicators are positive for 2012,” Clarence W. Gooden, chief commercial officer of CSX Transportation told analysts in a recent call.

“We expect solid growth in 58 percent of CSX's markets and stable conditions in 32 percent of our markets. While the utility coal volume will continue to be challenged by lower generation, low gas prices and higher coal inventories, we expect these headwinds to moderate somewhat through the balance of the year.”

CSX has a market cap of $23.09 billion in a sector, road and rail, where the average company size is $3.24 billion. Its trailing 12-month P/E ratio is 12.70 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.01, compared to 1.10 for the sector.

Its projected earnings per share growth for the coming year is 12.57 percent, compared to a sector average of 15.66 percent.

Economic recovery


Analysts are generally positive on CSX, with buy or outperform calls from Raymond James, Citigroup Investment Research, Standard & Poor’s Equity Research, Deutsche Bank, and Jefferies.

“We believe CSX will benefit from economic recovery in the U.S., given its role in transporting many of the basic materials required in manufacturing and construction. We also think the recession forced a more intense focus on operating efficiencies, which should support wider margins during a period of rising volumes,” S&P analysts wrote in early May.

“In our view, a valuation above the historical average is warranted as we weigh CSX's solid cash flow generation against the uncertain outlook for coal.”

CSX next reports on July 17.

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2012-06-11
Wednesday, 11 Jul 2012 10:06 PM
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