CSX Corporation (CSX) one of the leading rail-based transportation providers in the U.S. projected 20% growth each year in its earnings per share, from fiscal 2010 earnings till 2015.
The projection indicates CSX’ strong financial performance over the years through solid volume, revenue growth as well as operating ratio improvement. We believe improving economic fundamentals driving favorable demand supply dynamics, cost-control measures as well as higher productivity will fuel future earnings growth and enhance operating environment. Additionally, transportation capacity pull back in the truckload market bodes well for the pricing improvements.
In the recent quarter, CSX has shown accelerated growth in its three major segments namely Coal, Intermodal and Merchandize. In the Coal segment, the company registered a record high level of approximately 11 million tons export coal, owing to global supply constraints for export coal due to disruptions in Australia and growing export coal demand in Asian countries for steel production. As a result, management projected a whopping 40 million ton coal export in 2011. Further, the Merchandise segment is expected to fuel growth with an uptick in automotive, metals, phosphates and fertilizers.
In Intermodal, CSX benefits from volume on an economic recovery and new international customer wins driven by enhanced service and network offerings. Domestic Intermodal volumes and pricing are expected to thrive on tighter container capacity in the truck market.
To further develop CSX’ Intermodal network, the company recently invested $160 million on the National Gateway project, a multi-year public-private infrastructure initiative, which will significantly improve the freight network between the Mid-Atlantic ports and the Midwest. CSX is committed to invest approximately $400 million out of the total project cost of $850 million. The remainder of the sum will be funded by the state authorities.
The company’s financial strength enables it to reward shareholders incrementally. During the first quarter, CSX completed its multiyear $3 billion share repurchase program. Recently, the company also announced a $2 billion share buyback program through 2012.
However, we remain cautious on the stock due to competitive pressure from railroads like Norfolk Southern Corp. (NSC), underlying unfavorable trends in housing and utility coal markets as well as surging fuel prices (up 42% in the first quarter on ayear-over-year basis).
Consequently, we currently maintain our long-term Neutral recommendation on CSX supported by a Zacks #3 (Hold) Rank.
CSX CORP (CSX): Free Stock Analysis Report
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