Transportation

Analysts Are on Board With CSX Stock

As the economy reopens, CSX Corp. (NASDAQ: CSX) has seen its stock price improve. The stock is up 32% in the last three months, beating the S&P 500. The market index is up 24.5% for the same period.

This week, RBC Capital reiterated its Hold rating for the railroad operator. The analysts set their price target at $73. CSX Corp. was trading at around $70 Thursday afternoon, as the overall market plunged on worries of a second wave of coronavirus infections. This followed a bullish run as the market reacted to favorable unemployment and reopening news.

RBC analyst Walter Spracklin expects second quarter earnings per share (EPS) of $1. For the first quarter, CSX recorded EPS of $1.

Last week, two other analysts boosted the price target for the transportation service company. BMO Capital Markets raised its target from $71 to $75. The Barclays target jumped from $67 to $76.

At Barclays, analyst Brandon Oglenski likes CSX’s moves to lower costs. “While difficult to detect since the beginning of freight market challenges last year and continuing headwinds during the pandemic, we suspect CSX’s strategy to leverage lower cost and improve service outcomes will lead to future volume expansion.”

The average 12-month price target set by 25 analysts is $73.57. Analysts still see CSX as a solid portfolio contender. The stock has 13 Buy ratings and 12 Holds.

Surviving the Pandemic

“The railroad is running good despite all of the confusion associated with the economy right now,” said CSX CEO Jim Foote. He spoke about the COVID-19 pandemic this week at a Deutsche Bank conference, held online.

Rail service shipping is still way below the norms, Foote said. Some industries, such as autos, are down in the 80% range from the year-ago period.

U.S. railroads originated 740,171 carloads in May, a decrease of 27.7% from May 2019, according to the Association of American Railroads. Meanwhile, U.S. railroads originated 912,922 intermodal containers and trailers in May, a decrease of 13%. Combined U.S. carload and intermodal originations in May 2020 were 1,653,093, down 20.2%.

Still, Foote thinks the worst is behind us. “As we have moved over the last four weeks or so, we have clearly seen what I think at this point in time is the bottom of the volume decline,” he said. “We have been inching up week after week after week, as we have moved through May and now into June.”

The railroad continues to focus on improving service in the merchandise segment, Foote added. Prior to the pandemic, CSX was already seeing less business from coal transport. The company wants to make up for that by gaining more business from merchandisers.

Foote said CSX’s modernization has really helped. In the past, retailers have complained about transparency with rail shipping. When would their shipment arrive?

New tracking tools allow CSX customers to track their shipments in real time. Foote thinks this will help in the battle against the trucking industry, which some consider to be a more reliable means of shipping.

Keeping Costs Down While Investing in Infrastructure

The Jacksonville, Fla.-based rail operator reported in the first quarter that operating expenses dropped by 7%, higher than the 5% dip in revenue. First-quarter net income dipped by 8% to $770 million.

CSX says it has concentrated on improving efficiency for the last three years, which has helped in the current environment. Fuel efficiency has been another big initiative. The company reported reduced annual diesel consumption of approximately 60 million gallons.

In the past, a drop in business meant CSX would cut service, Foote said. But in the current crisis, the company has focused on cutting costs and improving service.

Even during the pandemic, CSX says it has continued to make investments in its infrastructure. “We took advantage of the low volumes to actually do more work and got more work done and are ahead of schedule really on our capital plan,” Foote said.

CSX Vice President of Engineering Ricky Johnson said the company continues to invest in ties, rails, bridges and other infrastructure.

Historically, investments in core infrastructure were “typically the first place that got whacked when you had any kind of economic hardship,” Johnson said in an interview this week with Railway Age magazine. He said CSX’s strong financial sheet allows it to continue to invest.