On Nov 18, 2013 we maintained our Neutral recommendation on
rail transport service provider
). We remain encouraged by the company's growth in Merchandize
and Intermodal segments. However, a subdued coal business, fierce
competition and regulatory issues remain causes of concern. This
Florida-based company holds a Zacks Rank #3 (Hold).
We believe favorable rail industry pricing and operational
improvement will drive CSX's revenues and earnings going forward.
The company aims to bring down its operating ratio to the high
60s range by 2015 and to mid-60s in the long term through volume
expansion, cost control and pricing gains.
Within the Merchandize segment, we remain encouraged by the
company's agricultural, automotive, chemical and construction
sector. Improved crop yields will boost the company's
agricultural business, while automotive shipment will remain
stable owing to increased vehicle production. In terms of
chemical product shipment, the company is expected to gain from
the emerging domestic oil and gas industry, while steady recovery
of the U.S. economy will support growth in the housing
The ongoing highway-to-rail intermodal conversions and
customer wins remain the main driver for the company's intermodal
segment and could deliver growth much higher than the rate of
broader economy. Further the company will benefit from the
movement of intermodal traffic in double stacking lane, which is
expected to grow even further owing to investments in
Declining Coal volumes remains the primary concern for CSX. We
expect coal revenues to remain affected by transition in the
energy markets. Consequently, the company's volume outlook on
domestic coal remains bleak with an anticipated decline of 5% to
10% in 2013. Even weaker demand of U.S metallurgical coal
continues to weigh on the export coal business.
Stiff competition from various transportation providers
including railroads and motor carriers along with regulatory
issues remain other headwinds for the company.
Other stocks that are worth considering within this sector are
Norfolk Southern Corp.
Arkansas Best Corporation
Covenant Transportation Group Inc.
). All these stocks currently hold a Zacks Rank #2 (Buy).
ARKANSAS BEST (ABFS): Free Stock Analysis
CSX CORP (CSX): Free Stock Analysis Report
COVENANT TRANS (CVTI): Free Stock Analysis
NORFOLK SOUTHRN (NSC): Free Stock Analysis
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