Markets

Why Has CSX's Stock Price Risen Sharply Over The Past Week?

CSX's stock price has risen sharply over the past week, as illustrated by the chart shown below.

CSX Stock Price Jan 2016

CSX Stock Price, Source: Google Finance

The company's stock was buoyed by reports of investment interest by a team of activist investors. As per a report in the Wall Street Journal, outgoing Canadian Pacific CEO Hunter Harrison is expected to team up with activist investor Paul Hilal in order to try to secure a senior management position for Mr. Harrison at CSX. The pair were previously on the same side in a successful proxy fight which installed Mr. Harrison as the CEO of Canadian Pacific in 2012. Mr. Harrison was instrumental in enhancing the profitability of Canadian Pacific through cost reduction and improvements in operating efficiency. Canadian Pacific's operating ratio (operating costs as a percentage of revenue) improved from around 81% at the end of fiscal year 2011 to around 59% in the latest fiscal year. Market participants expect Mr. Harrison to attempt to engineer similar operational improvements at CSX, which is reflected in the sharp increase in the company's stock price over the past week.

CSX reported an operating ratio of 69.4% in 2016 and is targeting an operating ratio in the mid-60s in the long term. It remains to be seen whether a change in management at CSX can engineer a steeper improvement in profitability. However, as of now, the recent run up in the company's stock price is purely speculative. The assumptions currently factored into our stock price model for CSX reflect the potential improvement in profitability driven by prevailing market conditions and the plans of the current management. These translate into our $39.03 price estimate for CSX . We will revisit our price estimate in the event of any management changes at the company.

Have more questions about CSX? See the links below.

  • What Is CSX's Revenue And EBITDA Breakdown?
  • What Is CSX's Fundamental Value Based On 2015 Results?
  • By What Percentage Did CSX's Revenue & EBITDA Grow In The Last 5 Years?
  • How Has CSX's Revenue Composition Changed Over The Last 5 Years?
  • By What Percentage Can CSX's Revenue & EBITDA Grow In The Next 3 Years?
  • How Will CSX's Revenue Composition Change By 2020?
  • What Would Be The Impact Of A 100 Basis Points Increase In CSX's Share Of U.S. Rail Intermodal Shipments?
  • CSX: A Look Back At The Year 2015
  • CSX's Q1 2016 Earnings Preview: Decline In Shipment Volumes And Fuel Surcharge Revenue To Negatively Impact Results

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for CSX

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


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

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