Transportation

Why Analysts Are Getting Much More Bullish on CSX

Jon C. Ogg

Published: July 16, 2016 11:55 am

Last Updated: January 13, 2020 5:39 am

CSX Corp. (NYSE: CSX) may have released its earnings a tad early on Thursday, but the reaction of almost a 2% drop in its shares on Friday simply does not represent the real story here. The early release of earnings on Thursday sent shares higher, and CSX’s shares actually closed out on Friday up 5.5%, higher than when the news was released on Thursday.

In addition, many analysts on Wall Street issued price target changes. Some of them were significant analyst calls to boot. It was not that long ago that the investing community was complaining that transportation stocks were not reflecting a bullish stock market view. Now the Dow and S&P 500 hit a new high during the week of July 15. CSX also now is within striking distance of its 52-week high.

Investors should pay attention because CSX’s market cap of $27.5 billion makes it with the top three (or four on other days) of the U.S. railroad transportation giants, if you include Warren Buffett’s BNSF.

Argus reiterated its Buy rating. This firm actually raised its target to $35 from $30, which is ahead of the formal highest $33 price target in the Thomson First Call universe. Argus said in its CSX report:

This well-managed company is facing difficult macroeconomic conditions, as low natural gas prices reduce demand for coal, though the environment is beginning to ease. On the positive side, rail operations are benefiting from the recovery in the U.S. auto segment, and the domestic intermodal business is generating solid growth. Management has expressed confidence in the company’s value and long-term outlook by buying back stock at attractive prices. The company is also making progress lifting margins toward industry-standard levels, though it took a modest step back in 2Q. Our valuation model points to an intrinsic value of $35 per share, and the current 2.5% dividend yield pays investors to wait.

These are the top analyst calls tracked by 24/7 Wall St., with most having been in summary format, as follows:

• BMO Capital Markets has an Outperform rating and raised its target price to $32 from $30.
• Citigroup reiterated its Buy rating and $29 price target.
• Cowen has only a Market Perform rating on CSX, but it raised its target to $30 from $27.
• Credit Suisse has an Outperform rating and raised its price target to $31 from $28.
• Deutsche Bank raised its target price to $29 from $27.
• Oppenheimer has a Perform rating.
• RBC Capital Markets has an Outperform rating and raised its price target to $32 from $30.
• Robert W. Baird has an Outperform rating and raised its target price from $28 to $30.
• Stephens has an Overweight rating and raised its target to $32 from $30.
• Susquehanna has a Positive rating and raised its price target to $33 from $31.
• UBS has a Buy rating and the firm raised its price target up from $27 to $31.

One more cautious call came from Stifel Nicolaus, with that firm downgrading CSX to Hold from Buy. This was a valuation call where the objective and outlook for the shares had been met.

CSX closed at $28.52 on Friday, within a 52-week trading range of $21.33 to $29.41. Its consensus analyst price target is represented as $28.29.

So much for needing to worry about the lack of business for coal transportation on the rails. Maybe the railroad sector is finally moving beyond that overhang.