Don't Bail On Rail: CSX Still Chugging

2/14/2011


  Recent Price
$71
  Dividend
$1.04
  Yield
1.5%
  P/E Ratio
17
  Shares (millions)
376
  Long-Term Debt as % of Capital
48%
  52-Week Price Range
$72.04 - $42.64

CSX ($71; CSX) operates 21,000 miles of railway running through 23 states east of the Mississippi River as well as Canada, connecting to more than 70 ports. CSX scores well in Quadrix®, earning above 60 in all six categories, with three above 90. CSX ranks particularly well relative to other industrial companies, earning a Reranked Overall score of 98 and 12-Factor Sector score of 96.

In the December quarter, CSX produced substantially higher revenue and operating-cash-flow growth than the average railroad company in the S&P 1500 Index. It also enjoyed the fattest gross and operating profit margins.

Despite strong operating momentum, CSX trades roughly in line with its peer-group average at 17 times trailing earnings. The stock also appears reasonably valued based on profit estimates for 2011, trading at 14 times projected profits, also in line with other railroads.

Wall Street's 2011 profit estimate rose 6% over the past month to $4.99 per share, which implies 23% growth. Sales are projected to rise 8%. CSX is a Focus List Buy and Long-Term Buy.

Business breakdown

Cash provided by operations jumped 58% to an all-time high of $3.25 billion in 2010, and free cash flow nearly quadrupled to $1.05 billion, also a record. Also, CSX's operating profit margins reached their highest level in at least a decade.

Excluding an extra week in fiscal 2010, revenue rose 16% for the year on volume growth of 9%, with revenue per unit up 7%. CSX's fuel expense jumped 43% in 2010, but higher gasoline prices could help railroads attract new customers, taking share from the trucking industry.

Coal revenue (31% of 2010 sales) grew 18% in 2010 despite flat volume, lifted by strong pricing and improved efficiency. CSX's coal exports rose 33% to 30 million tons in 2010, driven by demand in Europe and Asia. CSX sees coal exports growing to 35 million to 40 million tons in 2011 as more coal-burning power plants sprout up in China and India. The company also anticipates stronger U.S. coal demand from industrial and utility customers.

Within the merchandise unit (54% of 2010 revenue), growth was paced by automobiles (55% higher revenue and 44% higher volume), metals (28%, 20%), and chemicals (15%, 7%).

Looking ahead

An expanding U.S. economy should help sustain CSX's operating momentum in 2011, though year-over-year comparisons could prove challenging. CSX expects core pricing gains to exceed cost increases and volume gains to outstrip U.S. economic growth.

CSX has already begun to benefit from recoveries in the industrial and consumer-products sectors. The construction market could provide another catalyst this year. CSX seems capable of handling more volume, with 211 locomotives and 10,828 cars in storage, ready for deployment when demand rises.

Over the last five years, the dividend has risen at an annualized rate of 32%, while the share count has declined at a 4% clip. An annual report for CSX Corp. can be obtained at 500 Water St., Jacksonville, FL 32202; (904) 359-3200; www.csx.com.

 

CSX
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Dec '10
1.14
vs.
0.77
+ 21%
64.80
-
53.95
17 - 15
Sep '10
1.08
vs.
0.74
+ 16%
56.80
-
46.51
17 - 14
Jun '10
1.08
vs.
0.72
+ 22%
62.00
-
48.00
21 - 16
Mar '10
0.78
vs.
0.62
+ 11%
52.83
-
42.05
19 - 15
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
10.64
4.06
0.98
64.80
-
42.05
16 - 10
2009
9.04
2.87
0.88
50.80
-
20.70
18 - 7
2008
11.26
3.52
0.77
70.70
-
30.01
20 - 9
2007
10.03
2.73
0.54
51.88
-
33.50
19 - 12
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
97
92
66
92
62
95
75

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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