Should We Believe in Analysts ‘Buy’ Rating on CSX?



Analyst recommendations for CSX

CSX (CSX) is covered by 27 analysts. After the company’s 3Q17 earnings, one analyst changed recommendations on CSX’s stock from “hold” to “strong buy.” This change takes the number of analysts with a “strong buy” opinion to six (22.2%). Thirteen analysts (48.1%) have a “buy” recommendation on the stock.

Seven analysts (25.9%) advise stock owners to “hold” the company’s stock, whereas one analyst (3.7%) has a “sell” recommendation.

Now, we’ll look at analysts’ recommendations for other US Class I railroads (XLI).

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Peer group ratings

CSX’s biggest rival, Norfolk Southern (NSC), has an overall “buy” opinion from eight out of 27 analysts, whereas 17 analysts advise investors to “hold” NSC’s stock. Twelve out of 27 analysts suggest an overall “buy” on major Western US carrier Union Pacific (UNP). The remaining 17 analysts recommend a “hold” on UNP.

The smallest Class I railroad, Kansas City Southern (KSU), has nine analysts with an overall “buy” suggestion on the company while the remaining ten analysts advise a “hold” on KSU’s stock. Genesee & Wyoming (GWR) is the largest short-line operator in North America. Out of 12 analysts, seven analysts have an overall “buy” rating on GWR stock.

Canadian National Railway (CNI) has 14 analysts out of 19 with a “hold” recommendation on the stock. Its main competitor in Canada, Canadian Pacific Railway (CP), has 17 analysts out of 23 with a “buy” rating.

Is an overwhelming “buy” on CSX justified?

CSX raised its per-share dividend to $0.20 in early 2017 from $0.18. Plus, the company repurchased 29 million shares worth $1.5 billion this year. With operational improvements in place, CSX’s earnings per share growth should be 20% to 25% in fiscal 17 on a year-over-year basis.

The company has a favorable outlook for ~50% of the commodities it hauls and a neutral outlook for 11%. However, lower industrial production across North America could be a challenge for CSX’s top-line growth in the short term. The overall pricing environment could remain subdued in the coming quarters. Intermodal revenues seem to be more of a volume growth story without any pricing gains. Coal volumes are up, but the rise may not be sustainable. In fact, CSX is still battling with a huge recent decline in coal volumes.


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