Wall Street analysts didn’t change their views on CSX (CSX) after its 3Q16 results. CSX’s consensus rating remains a “buy.” However, since its 1Q16 results, analysts with a “buy” rating have gone down from 16 to 14. 11 analysts suggest a “hold,” while the remaining three analysts recommend a “sell.”
Peer group recommendations
28.6% of analysts recommend Norfolk Southern (NSC) as a “buy.” The smallest US Class I railroad, Kansas City Southern (KSU), got a “buy” recommendation from 38.1% of analysts. BNSF Railway’s (BRK-B) prime competitor in the Western US, Union Pacific (UNP), has “buy” recommendations from 60.7% of Wall Street analysts. Major Canadian railroads such as Canadian National (CNI) and Canadian Pacific (CP) have 21.4% and 72.4% “buy” suggestions from analysts, respectively.
All the US-born Class I railroads form 5.5% of the portfolio holdings of the First Trust Industrials/Producer Durables AlphaDEX Fund (FXR).
Why have analysts given CSX a “buy” rating?
CSX’s heavy investment in its intermodal business and network improvement will most likely show results in 1H17. Plus, the company’s operational improvement plans are on track. These will also have a favorable impact on the earnings in the quarters to come. A $2.0 billion share buyback program until April 2017 coupled with dividend improvements should give CSX’s earnings a push.
However, running longer trains will remain challenging for the company since metrics such as terminal dwell and freight cars online have not been favorable for CSX in 3Q16. In addition, the continued weakness in coal, intermodal, and chemicals will likely keep the pressure on CSX’s top line over the next few quarters.