Why is CSX Getting Revalued by the Market?
CSX’s current PE (price-to-earning) ratio is at 18x, compared to the S&P 500 at 19.1x. Overall, the company is expected to grow by 5% over the next two years.
CSX rewards its shareholders through dividends and stock repurchases. It increased its quarterly dividend by 13% to $0.18 per share in 1Q15.
There’s a broad demand for freight transportation, especially in the domestic market, and CSX is experiencing the pricing vibrancy in recent quarters.
CSX investments include $300 million for positive train control. Almost 50% of the investments will be used to sustain the core infrastructure.
CSX draws the majority of its merchandise revenue from Interstate 90 and Southeastern corridors. Total merchandise volume and revenue increased 2% and 1%, respectively, in 1Q15.
CSX’s Intermodal division grew at a CAGR of 8.5% over the past five years. It forms approximately 14% of the company’s total revenues.
The revenue CSX generated from transporting coal fell to $2.85 billion in 2014 compared to $3.71 billion in 2011. Coal forms approximately 21% of the company’s total revenues.
CSX reported 1Q15 earnings with double-digit EPS growth. It reported EPS of $0.45, beating analysts’ estimates by $0.01. Net earnings were $442 million compared to $398 million in 1Q14.
For six consecutive weeks, US crude oil inventory levels have fallen. Declining inventory levels suggest that imports of crude oil will increase.
Product supplied data provided by the EIA show the quantity of petroleum products supplied for domestic consumption. This gives us the implied oil demand.
Looking at the data for the past few years, US seaborne oil imports are on a declining trend. Reduced imports lessen the demand for tankers and has a negative impact on the crude tanker industry.
US oil production for the week ended May 29, 2015, was 9,586,000 bpd. The last four-week average—as of May 29, 2015—was 9,447,000 bpd.
Orderbook data tell you about the number of ships that have been ordered and the number that are under construction. Rising tanker orderbook suggests positive things are in store for the industry.
The biggest cost to run a ship is bunker fuel. Low oil prices benefit shipping companies a great deal, as lower costs can increase the bottom line substantially.
China is building new additional storage facilities. This should have a positive impact on companies including Frontline (FRO) and Nordic American Tanker (NAT), among others.
Auto sales are supposed to increase by 7% YoY to hit 25.1 million units in 2015. Increased automobile sales should intensify the demand for oil.
We can also asses the industry outlook by looking at the time premium. The time premium is the ratio of secondhand vessel value to the current price.
Except for a few days in December 2014 and in January 2015, the Baltic Exchange Dirty Tanker Index has shown positive YoY growth. In May 2015, the index gained 25% on a YoY basis.
With better prospects for the industry, companies are taking advantage of the decreased tanker prices. The newbuild vessel orderbook is on the rise.
Declining crude oil prices have proven beneficial for the crude tanker industry. Crude oil markets have been highly oversupplied, which resulted in a drop in oil prices.
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