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The Ratings Game: CSX set to boost rail network performance, say analysts

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CSX, which delivered a third-quarter earnings beat and robust guidance last week, is well positioned to boost the performance of its rail network, analysts say.

The railroad company’s stock rose 1.49% before market open on Monday, after ending Friday’s session up 1.7%. CSX Corp.
CSX,
+2.18%

shares have fallen 26.76% this year, outpacing the S&P 500 Index’s
SPX,
+0.05%

decline of 21.26%. The iShares Transportation Average ETF
IYT,
+0.79%

has fallen 26.06% in 2022.

The Jacksonville, Fla.-based company’s third-quarter revenue was $3.9 billion, an 18% increase on the same period last year, which CSX attributed to a higher fuel surcharge, pricing gains, a 2% increase in volumes and an increase in storage and other revenues. CSX, whose rail network covers much of the U.S. east of the Mississippi River, also maintained its full-year sales outlook for double-digit growth, excluding impacts from a real-estate transaction in Virginia.

CSX earned 52 cents a share, up from 43 cents a share in the prior year’s quarter. Operating income was $1.58 billion, a 10% increase on the same period last year. Analysts surveyed by FactSet were looking for revenue of $3.74 billion and net income of $1.06 billion.

See Now: CSX rallies on earnings beat, while Union Pacific stock lags

Raymond James raised its CSX price target to $33 from $31 on Friday, pointing to the company’s efforts around so-called precision scheduled railroading, which focuses on the movement of individual train cars, rather than whole trains. A key railroad industry trend of recent years, PSR aims to boost efficiency by streamlining operations.

“CSX continues to execute its PSR initiatives that we expect will continue to drive operational improvement, translating to stronger revenues, margin, EPS, and FCF gains in coming years,” wrote Raymond James analyst Patrick Tyler Brown.

Raymond James maintained its outperform rating for CSX.

Benchmark reiterated its CSX buy rating and $32 price target in a note released on Monday, noting the company’s earnings beat and top-line growth, which is offsetting higher expenses. “Looking forward, CSX maintained its full-year guidance and noted strong pricing,” wrote Benchmark analyst Nathan Martin. “Network performance is also on an upward trend as CSX continues to add manpower.”

See Now: Why a possible railroad strike would cripple the supply chain, stoke inflation

Improved service and capacity should give the company the ability to move more traffic as demand continues to outpace availability, especially in areas like coal and agricultural products, according to Martin. “Furthermore, management noted the opportunity to win share with existing customers as well as new ones,” the analyst wrote.

Of 29 analysts surveyed by FactSet, 19 have an overweight or buy rating, nine have a hold rating and one has a sell rating on CSX.

Union Pacific Corp.
UNP,
+1.22%
,
whose network is focused on the Western two-thirds of the country, also beat third-quarter profit and revenue expectations last week.  But the company cut its outlook for carload growth and share repurchases, initially weighing on its stock.

Union Pacific shares rose 0.77% before market open on Monday.

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