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CSX Corp. Builds New Terminal

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Leading U.S. railroad CSX Corporation (CSX - Free Report) formally began construction of $100 million Winter Haven intermodal rail terminal in Polk County, FL through conducting a ground breaking ceremony. Upon construction, the terminal would entail more intermodal business for the company and serve customers in key markets: Tampa, Orlando and South Florida.

The construction involves 318 acres of land area and includes five 3,000-feet loading tracks and two 10,000-feet arrival and departure tracks. The tracks will be covered by three electric Rail-Mounted Gantry Cranes that will facilitate loading and unloading of the trains.

The terminal is expected to create over 8000 annual jobs and produce economic development worth $10 billion over a span of 10 years.

CSX Corp. continues to invest in expanding its network and terminal capacity to ensure safety and service reliability for its customers. The company expects to make an investment of $2.25 billion for 2012 and its estimated capital investment for over 5 years represent 18% of revenue. The company has launched the National Gateway, a multi-year public-private infrastructure initiative, which will significantly improve the efficiency of the freight network between the Mid-Atlantic ports and the Midwest.

Total project costs are approximately $850 million, of which CSX Corp. expects to contribute approximately over $550 million. Additionally, CSX Corp. entered into a deal with Florida state regulators to deploy computerized rail operation called SunRail.

As per the contract, CSX will sell a 61-mile rail corridor to the State of Florida and in exchange receive exclusive rights to operate on the SunRail track. The new system is expected to start operating in 2014. Going forward, CSX plans to invest $500 million received from the sale proceeds of the deal for the development of Florida rail infrastructure.

However, we remain cautious on CSX Corp. given the declines in coal volumes, which constitute a significant part of its business. Further, the company’s capital intensive nature, unionized workforce, increased competition from major railroads like Norfolk Southern Corp. (NSC - Free Report) as well as strict railroad regulations keep us on the sidelines.

We maintain our long-term Underperform recommendation on CSX Corporation. For the short-term (1-3 months) the stock holds a Zacks #4 Rank (Sell rating).

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