Why CSX Is a Good Bet

During this weak energy pricing environment, CSX Corp. (CSX) is focusing on enhancing growth opportunities for its intermodal as well as merchandising business. For instance, CSX is building up a partnership with the truckers for the pick-up and the delivery for its intermodal business. This move will enable the company to solve strategic challenges such as retention of drivers and escalating cost for the Intermodal. At the same time, the company is investing in the intermodal networks that are expected to allow CSX to deliver 9 million loads in the long-term.

Focus on driving growth

In addition, CSX should benefit from the construction of Pittsburgh Intermodal Rail Terminal. This facility is expected to attach shippers in Western Pennsylvania straight to CSX’s widespread intermodal freight rail network.

Also, it should shift long-haul freight from highway to railways and at the same time strengthen the transportation infrastructure for the local region.

This start-up of the new facility is encouraging for the investors that should enable the company to grow its international intermodal volumes that dropped by 7% in the last reported quarter.
Why CSX Is a Good Bet
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However, its domestic intermodal volumes for the quarter rose by 11% on a year-over-year basis. This increase in the domestic volume was due to customer growth, acceleration in the highway-to-rail conversion, and new service offerings coupled with enhancements in the service level and network investments.

Growth drivers

Meanwhile, 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 in 2016 and 2017. Also, the improving U.S. economy along with stronger employment rate will continue to provide upside potential for the automotive market, which is forecasted to grow 18 million units for the next couple of years.

Moreover, the agency expects the auto growth in Europe and China to continue rising in 2016. It expects the auto sales in Europe to grow in the range of 2.5% to 3% while the auto sales in China are projected to increase in the range of 5% to 6% this year. Thus, this growth in the automotive and intermodal segments should enable the company to offset the decline in the coal volume going forward.

Conclusion

Although CSX revenue and earnings have declined on a year-over-year basis, the improvement in the networks, safety, and service remain solid that should lead to a better financial performance in the future. Also, the company continues to invest in the network as stated above that will allow the company to drive its growth going forward.

Published on Sep 19, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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