CSX Corporation (NYSE:CSX) is one of the leading railroads in the eastern United States and provides rail transportation for industrial, agricultural and coal products. While most of the company segments are somewhat correlated with economic growth, the coal freight business is particularly sensitive to the global macro-economic situation. With mounting evidence of slowing growth in Asian countries, especially China, this segment could cause a drag on CSX stock, going forward. 
According to our estimates, CSX’s coal freight division makes up 26% of the company’s total value. Coal revenues made up approximately 30% of its total revenues, according to the company’s Q2 10-Q. Our concern is further highlighted by the company’s declining coal revenues. Lower demand for utility coal resulted in CSX’s coal revenues declining by 14% in Q2, a primary drag on its revenue growth.
One of the primary reasons for the decline is the slowdown in China, the largest consumer of coal in the world, consuming over 40% of the world’s coal supply. With the Chinese economic growth slowing down and coal imports to the country declining, we expect an adverse impact on the demand for coal mined in the US.  While this primarily hurts mining companies, we think this economic cycle will continue to be painful for railroad companies who rely heavily on coal for revenues.
A low growth environment in China will also impact the average price of coal and consequently the amount of money coal miners are willing to pay for transportation. This will directly impact CSX’s average revenue per carload and lead to downside to CSX’s stock. For example, a decrease in the average revenue per carload of coal to around 2,000 next year would lead to approximately 10% downside to the company’s value.
Additionally, even if the average revenue per carload doesn’t decline, we expect total US carload of coal to decline in the event of an economic slowdown. While this won’t have as big an impact as revenue per carload, it would still result in some downside to CSX’s price. Even if the company witnesses growth in other segments, we expect declining coal revenues to be a drag on its overall revenue growth.
We currently have a $23.55 price estimate for CSX, which is approximately 5% above the current market price.Notes: