CSX Chugs Ahead with Solid Results, Revised $27 Fair Value

While CSX Corporation‘s (NYSE:CSX) stock traded down slightly after its earnings release, but we believe that the company’s fourth quarter and full year 2011 results were solid considering the difficult market conditions in the second half of 2011. For the full year 2011, CSX was able to achieve 10% growth in revenues to $11.7 billion and a 17% increase in earnings, backed by core pricing gains, greater fuel surcharges and a slight volume increase compared to last year. ^[1] Other major freight carriers, such as Norfolk Southern Corporation (NYSE:NSC), and Union Pacific Corporation (NYSE:UNP), also showed some improvement in performance, with Union Pacific in particular reporting very strong numbers.

We have revised our estimate price for CSX to $27, which is around 25% above the current market price. We have updated our model with the latest earnings release and made adjustments to the volume of coal moved by U.S. Class I rails, and changed the company’s discount rate to account for market uncertainty and volatility.

See our detailed analysis for CSX Corporation here

For the fourth quarter, the company reported a 5% year-over-year increase in revenues, totaling $2.95 billion, and a 6% increase in net income, to $457 million. The fourth quarter also saw a 5% increase in volumes transported in the merchandise sector, while coal volumes dipped 3% and intermodal remained flat.  Each of these segments witnessed 11 – 13% increases in revenue due to improvements in pricing.

The company also reported improvements in operating metrics compared to the fourth quarter of 2010, with on-time originations and arrivals increasing to 82% and 72%, respectively, and terminal dwell time coming down to 25.4 hours. The company has a bullish outlook going forward, planing to spend over $2 billion in capital projects as it expects the growth in volumes to continue as the economy seems to be heading in the right direction. We expect that an increase in fuel prices will further aid revenue growth and help the company deliver strong returns to its investors in the coming quarters.

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1. CSX Announces Record Fourth-Quarter and Full-Year 2011 Earnings per Share, CSX News Releases [↩]