Article / 16 January 2014 at 10:56 GMT

CSX down 3% in after-hours trading on modest outlook

Head of Equity Strategy / Saxo Bank

By Peter Garnry

US transport operator CSX (CSX:xnys) reported 4Q earnings per share of 42 cents versus the expected 43 cents after the market close yesterday. This result was down slightly from 44 cents in 4Q 2012. On a more positive note, volume increased six percent as the US economy continues to grow, thus supporting positive activity in the logistics industry. Initial market reaction was not positive and the stock declined three percent.

US economy to support positive view

While the initial market reaction was negative it is our firm believe that it is the wrong interpretation of the result and outlook. CSX delivered a record year with revenue for 2013 at USD 12 billion and EBITDA at USD 4.6 billion. The company says it will hire 2,000 new employees in 2014, signalling its faith in the US economy this year. 

Coal volume, which is big segment for CSX, declined in 4Q due to a decrease in shipments of domestic coal as a result of a continued low natural gas prices and utility stockpiles, which remained above target levels. The decline was partially offset by an increase in export coal which was driven by increased shipments.

Our quant model is predicting ROIC to be 8.1 percent over the next 12 months which based on the current share price means that the stock is undervalued. Momentum is also decent so our overall view is positive. With the US economy to accelerate in 2014 CSX could surprise to the upside.




Peter Garnry Peter Garnry
The stock is up 1.2% in pre-market trading and substantial reversal from after-hours trading reaction.


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