Revenues increased 18%, approaching $3 billion. Earnings per share from continuing operations skyrocketed 40% to $0.94. As management pointed out, distributors are exploiting railways to the advantage of their supply chains. This is cool for shareholders of CSX, who obviously are hoping their company can successfully navigate the tough economic landscape that we're all trying to find maps for. And if oil prices continue to fall, then CSX may find it easier to manage its operations.
And there's another positive. According to this source, CSX beat analyst expectations by a penny. Unfortunately, according to that same source, management believes that it will hit the lower end of the spectrum in terms of its previous guidance. CSX is looking to earn between $3.65 and $3.75 per share for the fiscal year.
Taking everything together, I'm not sure I'd want to enter CSX at this time. It is well off the 52-week high, but it's not exactly near the 52-week low, either. Even though the energy picture might be moderating for the company, and even though its business does offer a compelling transportation service, I think a macro slowdown might send shares back toward the low. And according to this source, freight volume declined by over 2%. Problems in the automotive industry are negatively affecting CSX. Heck, problems in many industries will be with us for a while. CSX will see its operations pressured. And, again, that tells me that I'd have to see a big drop in the stock to find it attractive at this point.
Disclosure: I don't own any company mentioned; positions can change at any time.
"Railroads are a play on three big secular themes: the drive for increased energy efficiency, growth in coal and the agriculture boom," says Elliott Gue, a energy sector expert who has just returned from Japan where he was covering the G8 Summit.
Meanwhile, in his The Energy Srategist, he states, "Railroads are now among the most fuel-efficient forms of freight transport available." Here, he offers a bullish review of Union Pacific (NYSE: UNP).
"My long-held thesis on the group has been that the railroads are no longer totally dependent on the US economy for their growth.
"It's no longer appropriate to look at this sector as viciously economy sensitive. The traditional relationship between the broader market and the rails has been breaking down for several years, but this trend appears to be accelerating.
"In 2007, according to the Association of American Railroads (AAR), the average railroad moved a ton of freight a distance of 436 miles on a single gallon of diesel fuel. That makes freight trains roughly three to four times more fuel efficient than trucks.
"Union Pacific is the largest railroad in the US and has long been one of my favorites. The company's network is nearly 33,000 miles long and is concentrated in the West and Midwest. It also offers a convenient example of the bullish forces at work for the rails, particularly in the coal and agriculture industries.
When a major, metropolitan U.S. newspaper discovers a investment trend or a hot sector, count on increased share demand for companies in the sector. When that paper is one of the top three dailies, in this case The Washington Post, count on even more demand.
Readers of this space know that the preference here is for large cap companies, with demonstrated business models, and favorable long-term factors, that have the resources to ride-out short-term economic downturns, including recessions.
And in this category a railroad stock represent a prudent addition to a portfolio, for investors who can tolerate moderate risk.
Pick a railroad. Virtually any railroad. Odds are, you will do fine, long-term, as the nation continues to re-discover the valuable asset - - the national treasury, really - - of its railroads. (More on that latter topic, in a future blog.)
Here are the railroad plays, ranked by risk, with the top stock, BNI, being the lowest risk. A stop/loss, if one were to buy the stock, is also listed:
Union Pacific (NYSE: UNP), a leading transportation company, closed at $120.92. UNP overall option implied volatility of 33 is above its 26-week average of 29 according to Track Data, suggesting larger price risks.
Burlington Northern (NYSE: BNI), an operator of 32,000 railroad route miles, closed at $80.77. BNI overall option implied volatility of 34 is above its 26-week average of 29 according to Track Data, suggesting larger price fluctuations.
Canadian National (NYSE: CNI) closed at $46.36. CNI overall option implied volatility of 33 is above its 26-week average of 26 according to Track Data, suggesting larger price fluctuations.
Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Retailer Kohl's Corporation (NYSE: KSS) is today expected to announce an exclusive multi-year active wear licensing partnership with Fila Luxembourg S.a.r.l., a part of Fila Korea, according to the Wall Street Journal.
According to a senior executive at Telefonica SA (NYSE: TEF), the company's efforts to obtain exclusive control of Vivo have stalled, the Financial Times reported.
News Corp's (NYSE: NWS.A) Rupert Murdoch said the company plans to replace nearly one million paid subscribers of the online Wall Street Journal with 10-15 million "who wouldn't pay a thing." Murdoch's long-term plan is to penetrate developing markets, The Australian reported.
Sidney-based Cabela's was founded in 1961 and went public in 2004. Cabela's is considered a buy by the consensus of analysts surveyed by Thomson Financial, but a closer look shows that they are split between strong buy and hold. The share price reached a 52-week high of $28.80 in early August after Cabela's second quarter results beat Wall Street expectations. The price was $23.91at the close on Wednesday. The Motley Fool points to tough same-store sales and insider trading as reasons for Cabela's "sophomore slump." In other words, high expectations from the IPO have worn off and its time to consider buying. In addition, Motley Fool, like Consumer Reports before it, likes Cabela's VISA credit card. Cabela's was also recently included on S&P Small Cap 600 index, and it made the 2007 Forbes list of 100 best mid cap stocks. Cabela's will release third quarter results on November 1.
Given investors anxiousness about the economy and hearing more gloom and doom than I think is warranted, I thought I would get back to basics with "my pal" Warren, and add to the series I started several months ago. I decided to write the series after receiving encouragement from friends and associates that read With Warren Buffett by my side ....
Today, I am writing about the concept of Durable Competitive Advantage, which is the ability to get ahead and stay ahead with a high level of certainty. It is also referred to as Sustainable Competitive Advantage.
To achieve a Durable Competitive Advantage, several factors have to be present. One is a big moat (Buffett expression) surrounding the enterprise. This usually means businesses that sell commodities where price is the primary factor in determining opportunity, have no moat as price takers. Their profit margins are not easily defendable. Another factor is barrier to entry. How easy would it be for someone to enter the same business and compete? The T-shirt business is a good example, of something without a Durable Competitive Advantage. Anyone could enter this business in one day, and they do. So unless the business has some unique concept, it does not have the promise of relatively predictable and sustainable profit margins in the future.
It's a big deal whenever Warren Buffett so much as sneezes, and this morning was no different. Berkshire Hathaway's (NYSE: BRK.A) decision to boost its stake in Burlington Northern Santa Fe (NYSE: BNI) made the expected splash, and up went Burlington's stock 3%.
Back in April, Berkshire disclosed an 11% stake in Burlington, and then in May it announced investments in two other railroads: Norfolk Southern Corp (NYSE: NSC) and Union Pacific Corp (NYSE: UNP). Buffett clearly sees value in riding the railroads.
Then today came Berkshire's disclose that it had raised its stake from August 3 through August 7 to 11.5% from 11% -- which, while not exactly earth shaking, is a strong indicator that Buffett sees the recent price weakness enveloping the market as a buying opportunity. Usually when the "oracle" Mr. Buffett sees something, it is worth paying attention.
MOST NOTEWORTHY: Select railroads were popular initiations today:
Morgan Keegan started shares of Burlington Northern Santa Fe Corp (NYSE: BNI) with an Outperform rating and believes the stock should trade at a premium to Class 1 railroad peers, as the company consistently ranks above its peers in terms of operating ratio and return on invested capital.
Morgan Keegan believes Kansas City Southern (NYSE: KSU) de Mexico provides KSU a tremendous growth opportunity, starting shares with an Outperform rating.
Morgan Keegan also believes Norfolk Southern Corp (NYSE: NSC) is undervalued, despite having some of the best operating metrics in the industry, initiating shares with an Outperform rating.
Union Pacific Corp (NYSE: UNP) was started with an Outperform rating as Morgan Keegan believes earnings estimates and management guidance may be conservative.
Finally, CSX Corp (NYSE: CSX) was initiated with a Market Perform rating at Morgan Keegan as the firm believes there is more risk to the current share price than the potential upside...
MOST NOTEWORTHY: American Home Mortgage Investment Corp (AHM), MasterCard Inc (MA) and the selective railroad companies were today's more notable initiations:
JMP Securities started American Home Mortgage (NYSE: AHM) with a Market Perform frating citing the challenging mortgage market.
UBS started MasterCard (NYSE: MA) with a Buy and doesn't believe margin upside is fully reflected in the stock's valuation.
MOST NOTEWORTHY: The Railroad Sector and Obagi Medical (OMPI) were today's most notable initiations:
Calyon Securities initiated coverage on the following stocks, all with Neutral ratings, including Burlington Northern Santa Fe Corp (NYSE: BNI), Canadian National Railway Co (NYSE: CNI), Canadian Pacific Ltd (NYSE: CP), CSX Corp (NYSE: CSX), Norfolk Southern Corp (NYSE: NSC).and Union Pacific Corp (NYSE: UNP).
Obagi Medical (NASDAQ: OMPI) was initiated by Baird with an Outperform rating and $13 target; CIBC started the specialty pharmaceutical company with a Sector Outperformer rating and $14 target, saying the company is a pure play in the rapidly-growing aesthetics market and has expectations that the company's growth will accelerate due to the rise in physician-dispensed products.
OTHER INITIATIONS:
MasterCard Inc (NYSE: MA) was initiated with a Neutral rating at Merrill Lynch.
Xoma Ltd (NASDAQ: XOMA) was initiated with a Market Outperform rating at Rodman & Renshaw. The firm said XOMA's antibody technology licenses and manufacturing provide an important source of consistent and growing commercial revenues. Additionally, the broker said Raptiva is becoming a more meaningful contributor.
CSX (NYSE: CSX), a transportation company whose competitors include Burlington Northern Santa Fe (NYSE: BNI), Norfolk Southern Corp. (NYSE: NSC), and Union Pacific Corp. (NYSE: UNP), reported earnings for the third quarter on Tuesday. The results weren't bad, driven in part by a drop in energy costs and an effort to keep costs under control. 
When a major, metropolitan U.S. newspaper discovers a investment trend or a hot sector, count on increased share demand for companies in the sector. When that paper is one of the top three dailies, in this case The Washington Post, count on even more demand.
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Given investors anxiousness about the economy and hearing more gloom and doom than I think is warranted, I thought I would get back to basics with "my pal" Warren, and add to the series I started several months ago. I decided to write the series after receiving encouragement from friends and associates that read 
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