CSX: a Strong Buy

CSX (CSX) is focusing on its fundamentals such as productivity gains and lowering its expenses that are allowing the company to improve its bottom line performance.

This improvement in its service quality, as well as reduction in its expenses, helped the CSX to improve its bottom line performance by 2% year-on-year basis. This is despite the fact that its revenue for the quarter declined by 8% from the prior-year period. Its earnings for the quarter came in at $0.52 per share for the quarter as compared to $0.51 per share in the third-quarter of 2014.

More importantly, CSX expects mid-single digit EPS growth and meaningful improvement in its full year operating ratio this year, driven by these efficiency improvements initiatives.
Also, it plans to accelerate efficiency gains next year through additional service improvements that should positively impact its earnings in 2016.

Strong automotive and housing growth to drive its performance in 2016

CSX should benefit from the strong growth in the automobile market in the United States. As per a report from IHS, the low-interest rates coupled with low gas price will allow the auto market to remain positive throughout 2016. IHS sees plenty of upside potential for the auto market in the region with the growth of US economy and stronger employment rate. It expects these factors to boost auto market to 18 million units over the next couple of years.

In fact, CSX expects North America light vehicle production to grow 18 million, an increase of 3% from 17.5 million in 2015. Also, it expects steady growth in the housing market. It forecasts the housing starts to grow 1297 thousand in 2016 from 1112 thousand. This significant growth in the automotive and housing market should help the company to offset the decline in the coal market. The charts below show the growth of automotive in 2016 in the United States.

Apart from these, CSX continues to grow its intermodal business. It has recently made a strategic investment in Intermodal that supports highway to rail conversions and drive growth with existing customers that should drive its growth in the future. For instance, the company during the quarter made an investment in Casky yard. This investment should allow the company to move unit trains from the Illinois basin down into the southeast in a much more efficient manner.


CSX remains a good bet in the short as well as in the long-run. It has learnt to grow its bottom lines despite significant headwinds in the coal market. Moreover, it is continuously investing in the network that should drive its growth in the future. It has a strong balance sheet that carries total cash of $1.8 billion and has total debt of $13.32 billion. It has operating cash flow of $7.65 billion and free cash flow of $2.22 billion that should support its growth in the future.
Published on Apr 12, 2016
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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