Readers of this space know that one of my preferred sectors is the railroad sector. The growth in international trade, the importance of commodity transport, and record-high oil prices mean the rails will play a central role in the nation's economy. And a railroad stock worth owning is CSX Corp.CSX Corp (NYSE: CSX) operates the largest rail network in the eastern United States, with a 22,000-mile rail network in 23 states and two Canadian provinces.
In general, analysts see 9-12% revenue growth for both 2008 and 2009, with continued pricing power (including expired contract re-pricings) and improved asset utilization.
Further, coal traffic should rebound in 2008, while intermodal traffic is expect to remain solid, even with a slowdown in the building materials and automotive businesses.
Also, several infrastructure improvements and capacity increases should improve CSX's delivery times and reduce dwell times. The Reuters F2008/F2009 EPS consensus estimates for CSX are $3.60/$4.23.
Currently trading around $68 with a p/e of 226, CSX is not cheap. But the view here is that the 3-5 year outlook is promising for this major rail line; moreover, the likelihood of persistently-high oil prices means more businesses will switch to rail transport for goods.
The risks? A further deterioration in the U.S. economy would hurt CSX's results, as would reduced demand for coal.
But absent the above, or the emergence of a cheap, alternative fuel for trucks - - the rails' primary competitor - - look for CSX to continue to post solid results as a major commercial transport form for the nation.
The First Call mean rating for CSX is: Hold [13 firms]. Mean 2008 target: $59 [high: $72, low: $50].
Stock Analysis: CSX Corp. is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from CSX's shares. Note: More-cautious investors may wish to wait until CSX pulls back to $61-63, but keep in mind that CSX may not retreat to that level. Sell / Stop Loss if you were to purchase shares in this company: $43.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
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