Back to top

Analyst Blog

Zacks Equity Research

CSX Corp Renders Bullish Update on Coal Volumes; Stock Up

CSX UNP NSC USDP

Trades from $3

Shares of railroad operator CSX Corporation (CSX - Free Report) have been on an uptrend of late. The stock has comfortably outperformed the Zacks-categorized ‘Transportation- Rail’ industry over the last three months. In fact, the Jacksonville, FL-based company’s stock has gained 27.26% over the same period. The comparable figure is only 5.9% for the industry.

Adding to the optimism, Executive Vice President and Chief Financial Officer of the company – Frank Lonegro – provided a bullish forecast for the fourth quarter of 2016. The stock gained 2.90% following the robust guidance on Nov 30, to close the trading session at $35.81.

The Forecast

At the Credit Suisse 4th Annual Industrials Conference, Lonegro mentioned that demand in many of its key markets, including coal, is on a rise. The improvement in coal shipments can be gauged from the flat year-over-year volumes of the commodity so far this quarter. Overall, volumes have declined only 3% on a quarter-to-date basis.

Based on the improving demand trends driven by coal, the railroad operator expects volumes to be flat to up slightly in the fourth quarter. The company had earlier predicted that overall volumes would remain unchanged in the quarter. This would mark a significant improvement from the third quarter when coal volumes declined in double digits. The bottom line for the quarter is now projected to remain unchanged or improve slightly from the year-ago quarter. (the earlier expectation was for earnings to be flat or slightly lower than the prior-year quarter).

Moreover, the company is aiming to drive bottom-line growth through cost-cutting initiatives. In fact, CSX Corp. delivered better-than-expected results in the third quarter despite weak coal shipments, primarily on the back of cost savings. The company still expects to save around $400 million in 2016.

The Trump Effect

Declining coal shipments have hurt not only CSX Corp. but also its peers in the railroad space like Norfolk Southern Corporation (NSC - Free Report) and Union Pacific Corporation (UNP - Free Report) . However, the election of Donald Trump as the President last month is likely to usher in good news for railroads. This is because during his campaign Trump had issued statements in favor of reviving the beleaguered coal industry.

In his very words, “Coal will last for 1,000 years in this country.” Given that coal is a key revenue generating commodity for railroads, Trump’s pro-coal stance is certainly a positive for the companies in this space. Trump’s promise to spend more on infrastructure is also a positive for railroads.

Zacks Rank

CSX Corporation currently carries a Zacks Rank # 3 (Hold). A better-ranked stock in the railroad space is USD Partners LP (USDP - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  The Zacks Consensus Estimate for the current year has surged 46.5% over the last month to $1.26 per share for USD Partners.


Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>


In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

CSX CORP (CSX) - free report >>

UNION PAC CORP (UNP) - free report >>

NORFOLK SOUTHRN (NSC) - free report >>

USD PARTNERS (USDP) - free report >>