Is CSX On The Right Track? Bull, Bear Takes On The Q1 Print

Railroad company CSX Corporation CSX beat the Street when it reported frist-quarter earnings Tuesday, but sell-side analysts have mixed opinions on its long-term outlook.

CSX reported first-quarter earnings per share of $1.02, up 30 percent year-over-year and more than a dime above Wall Street expectations of 91 cents. The company’s performance was aided by some extraordinary items, including a lower tax rate, but even so, it still came in stronger than expected on earnings. CSX did post a slight revenue miss, however.

The earnings improvement was driven mostly by cost efficiencies. Analysts disagree whether that’s enough for the near future.

The Analysts

Morgan Stanley’s Ravi Shanker maintained an Underweight on CSX and lifted the price target from $55 to $57.

Raymond James analyst Patrick Brown maintained an Outperform rating on CSX and raised the target price from $81 to $84.

Morgan Stanley 

Morgan Stanley is bearish — not on CSX's circumstances now, but in the future.

While appreciative of the cost turnaround at CSX, Shanker said “earnings at CSX (and other U.S. rails) are aided by potentially unsustainable items including export coal, real estate gains, demurrage and other items, which we expect to reverse in the coming years.”

The analyst is also cautious about whether rail volume will grow in several markets, including coal, autos, energy and grain. Pricing gains are also slowing, and the low-hanging cost improvements have been taken, Shanker said. 

Raymond James

CSX’s efficiency moves — known as “precision scheduled railroading" — are what Raymond James likes. 

The Jacksonville, Florida-based company appears poised to continue operational improvements, leading to higher margins, EPS and free cash flow in the coming years, Brown said. 

“CSX has begun to produce consistent improvement with various operating and service metrics trending positively,” he said. “Combined with rationalizing the expense base, we believe the opportunity stack to drive improvement in the operating ratio and FCF is large.”

Price Action

CSX shares were trading up 5.46 percent to $80.03 at the time of publication Wednesday. 

Related Links:

CSX's First-Quarter Operating Ratio Falls Under 60 Percent On Higher Profits

Shortline Railroads Essential To The Success Of Precision Railroading

Photo by Nate Beal via Wikimedia.