Why Has CSX’s Stock Price Risen Sharply Over The Past Week?

by Trefis Team
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CSX Corporation
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CSX’s stock price has risen sharply over the past week, as illustrated by the chart shown below.

CSX Stock Price Jan 2016

CSX Stock Price, Source: Google Finance

The company’s stock was buoyed by reports of investment interest by a team of activist investors. As per a report in the Wall Street Journal, outgoing Canadian Pacific CEO Hunter Harrison is expected to team up with activist investor Paul Hilal in order to try to secure a senior management position for Mr. Harrison at CSX. [1] The pair were previously on the same side in a successful proxy fight which installed Mr. Harrison as the CEO of Canadian Pacific in 2012. [1] Mr. Harrison was instrumental in enhancing the profitability of Canadian Pacific through cost reduction and improvements in operating efficiency. Canadian Pacific’s operating ratio (operating costs as a percentage of revenue) improved from around 81% at the end of fiscal year 2011 to around 59% in the latest fiscal year. [1] Market participants expect Mr. Harrison to attempt to engineer similar operational improvements at CSX, which is reflected in the sharp increase in the company’s stock price over the past week.

CSX reported an operating ratio of 69.4% in 2016 and is targeting an operating ratio in the mid-60s in the long term. [2] It remains to be seen whether a change in management at CSX can engineer a steeper improvement in profitability. However, as of now, the recent run up in the company’s stock price is purely speculative. The assumptions currently factored into our stock price model for CSX reflect the potential improvement in profitability driven by prevailing market conditions and the plans of the current management. These translate into our $39.03 price estimate for CSX. We will revisit our price estimate in the event of any management changes at the company.

Have more questions about CSX? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for CSX

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Notes:
  1. Outgoing Canadian Pacific CEO and Activist Investor to Target CSX, Wall Street Journal [] [] []
  2. CSX’s Q4 2016 Earnings Release, SEC []
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