CSX Fights Coal's Decline By Going Intermodal

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Investors shouldn't expect mature American railroad firms to light up IBD's stock market tables with stellar ratings and bright, shiny growth. After all, some of these businesses precede the Civil War (1861-1865).

For the income investor, however, there's plenty to consider.

This column's mission is to help readers discover and profit from stocks that show a sound business model, reliable earnings, good cash flows, a rising cash dividend, and high potential for capital gains.

Jacksonville, Fla.-basedCSX ( CSX ), founded in 1827, appears to meet these criteria.

The stock is up 39% since Jan. 1, beating a 26% gain for the large-cap S&P 500. Despite a few mild pullbacks, CSX is also up from a 10-week cup-with-handle breakout at 25.89.

The major head wind for CSX today is the deteriorating coal sector. Energy markets continue increasingly to favor natural gas. To combat the decline, CSX sees the merchandise and intermodal businesses as a counterbalance for continued growth.

At the Baird Industrials Conference in Chicago last month, CFO Fredrik Eliasson noted that these two businesses now make up more than 80% of CSX's total volume. He said customers see the "attractive economic value of converting freight from highway to rail."

IBD's Transportation-Rail group, however, is lagging Transport-Truck in terms of 12-month performance; the two are up 35% and 53% respectively.

CSX's 2.2% annual dividend yield is one of the lowest within IBD's Dividend Leaders screen results. However, CSX is growing its dividend sharply, up an estimated 19% on a trailing 12-month basis over the past three to five years.

Revenue growth picked up in Q3, rising 4% vs. a 2% increase in Q2. CSX gets an A in SMR Rating. It also earns an excellent 3-year Earnings Stability Factor of 5. Strong annual operating cash flows weather the relatively high long-term debt to equity ratio of 101%.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Investing Ideas

Referenced Stocks: CSX

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