CSX Corp. Chugging Forward

We are continuing our Buy rating on CSX Corporation (CSX - Snapshot Report), a provider of rail freight and intermodal transportation, but lowering our target price to $40. CSX will report fourth quarter results on January 20.

We are reducing our diluted EPS estimates to $3.60 from $3.66 for 2008, below CSX guidance of $3.65-3.75, and to $3.75 from $4.25 for 2009, largely due to lower revenue estimates related to weakening volumes from a slowing economy and reduced fuel surcharge revenues.

Partial offsets include improved efficiency, better yields, and share buybacks. CSX posted third quarter EPS of $0.94, above the $0.93 consensus, but below our $0.97 estimate, due to storm-related losses in the Gulf Coast and the Midwest.

CSX's growth prospects still look solid, with management affirming long-term growth estimates (through 2010) of 15-20% in operating income and of 20-25% in EPS, partly reflecting improved efficiency, with the operating ratio estimated to drop to the high 60s. CSX increased the dividend 22% to an $0.88 annual rate.

Read the full analyst report on CSX