Personal finance
Burger King slims down for success
The Penguin-Random House merger: 3 takeaways
Dunkin' weathers storm to attract crowds
Inside Wall Street: Bank weathers its own storm
How Sandy will affect shipping business
The whopping US rally that wasn't
Disney acquires Lucasfilm for $4B
Late-inning earnings plays
Gilead's 'son of Viread' passes first test
Auto sales expected to stay strong into 2013
Why Yamana shares are soaring
Archer Daniels Midland is boring and cheap
Stericycle finds treasure in trash
Don't follow Icahn into Netflix
How to trade the US presidential election
David Einhorn is shorting iron ore
What's next for Exxon after Rosneft buy?
Who's right, Main Street or Wall Street?
Hershey shareholders sue for child labor records
China's growth picks up
Europe offsets Johnson Controls' Asia gains
CSX took too heavy a beating
In retail, pessimism doesn't pay
Illumina should reconsider Roche's offer
CSX took too heavy a beating
CSX Corporation (CSX +0.05%) saw a steep decline in its stock price in mid-September, falling almost 10% when its competitor Norfolk Southern (NSC +0.24%) announced that its third quarter earnings will be approximately 25% below analyst estimates. Since the decline, the company's stock has traded below our current price estimate of $22 and is currently trading around $20.

While we think the concerns surrounding railroads are justified in the uncertain macroeconomic environment, CSX's stock price has taken a hit far beyond what is warranted. We think the company has been proactive in controlling costs and improving efficiency which, combined with automotive and intermodal revenue growth, provide the base which supports our $22 valuation.

Improving efficiency to help control costs

In our opinion, CSX's management has done a good job especially compared to Norfolk Southern in cutting costs to tackle the slowdown in freight volumes. For example, during the third quarter, CSX's operating income declined 3% on 2% revenue decline while Norfolk Southern's operating income declined 22% on revenue decline of 7%.

What encourages us is CSX's ability to hold costs down over the long term by improving its operating efficiency. Key metrics such as one-time originations and arrivals increased to 90% and 80%, respectively, during the third quarter. Additionally, terminal dwell decreased to 23.2 hours from 25.5 hours and average train velocity increased to 23 mph from 21 mph year-over-year.

We expect CSX's management to maintain, if not improve on, these efficiency gains. Hence, we expect CSX's EBITDA margins will remain flat in the coming quarter and into next year but will start to grow as economic conditions improve.

Intermodal, automotive growth will drive revenue

Intermodal services help freight customers to take advantage of multiple forms of shipping. Customers can leverage the flexibility of truck pickups with the price benefit of long haul rail freight to efficiently manage their supply chains. Their preference for this mode of transportation is evident by the fact that intermodal carloads increased approximately 4% year-over-year in October.

CSX's management, to its credit, sees intermodal freight as a lucrative opportunity. It has spent heavily on assets such as the National Gateway which support or expand its intermodal operations. Additionally, the company is attempting a double-stack initiative where one container can be stacked on top of another, which will further help to cut costs.

In addition to intermodal freight growth, we think automotive freight will also help offset declines in other segments. CSX's third quarter automotive freight revenues increased 18% because of higher vehicle production, which saw increases to meet pent up demand created by the high average vehicle age in the US.

However, the automotive industry is cyclical in nature and could be affected by a deeper slowdown in overall economy. Additionally, as individuals continue to replace old vehicles, we might see growth in this segment moderate going forward as vehicles are not a commodity purchased by customers on a recurring basis.


Overall, we think that CSX has done well in recent quarters to improve efficiency and keep a check on its operating ratio. We expect growth in CSX's overall revenues will be muted but should be helped by increases in automotive and intermodal freight volumes. If management is able to maintain efficiency gains, the overall volume weakness should not have a drastic impact on the firm's bottom-line.

Для печати
Microsoft will 'die and disappear' in next few years
Whole Foods' freshness starting to wilt
In a war of attrition, Microsoft will beat Apple again
Asbury Automotive sees strong earnings momentum
Student debtors get the runaround
What to keep in your money survival kit
First-date coupon use is on the rise
Groupon offers NYC dinner in the dark
The worst credit cards of 2012
Post-Sandy, banks waive fees
Homeowners spared costly hurricane deductible
7 ways to commit financial suicide
Why are car loans so easy to get?
Best credit cards after bankruptcy
Get more cash for your old clothes
5 fee-free ways to help Sandy victims
After a flood, frugality can be dangerous
After the storm: Rebuild or move?
My unexpected $2,400 vet bill
Best credit cards for holiday shopping
Downside of a higher retirement age
Prepaid cards are not gift cards
Is the economy destroying love?
Financial lesson from a football game
Book Christmas flights before Black Friday
6 ways to earn extra holiday cash
Holiday shopping? Avoid this retail trick
Many holding out for Cyber Monday
SiriusXM drives straight race to $3 a share
Sandy: Beware the bubble in storm stocks
Starbucks: Buy it, own it, love it
4 Canadian value stocks
What's the White House worth?
Stocks are immune to Washington
EMC strengthens RSA business with acquisition
Russia garners another favorable valuation call
Goldman Sachs slashes partnership ranks
Inside Wall Street: Cheers from Bud and Diageo
4 favorites for a housing rebound
Is Baidu's China reign over?
In 2013, Apple, Facebook will fly, Intel will die
Is AOL's turnaround for real?
Stock buyback blitz continues
Anheuser-Busch pushes higher-alcohol beers
Baidu: Searching for growth in China
Twitter vs. Facebook: The war heats up
Would Disney buy Hasbro?
Vending-machine pizza prepares for US debut
Amazon lockers coming to Staples
Are customers becoming less loyal to Apple?
Focus on earnings, not fiscal cliff
Evergreen stocks: 4 favorite dividend ideas
Visit Statistics