CSX Bull, Bear React To Rail Line's Q4 Print

Rail company CSX Corporation (NASDAQ: CSX) reported Wednesday afternoon with a top- and bottom-line fourth-quarter beat, but cautioned investors to expect a slowdown in revenue growth in 2019 from 7 percent in 2018 to a "low single-digit."

The Analysts

Morgan Stanley's Ravi Shanker maintains an Underweight rating on CSX with a price target lowered from $56 to $55.

Raymond James' Patrick Tyler Brown maintains at Outperform, unchanged $71 price target.

Morgan Stanley: 'Unfamiliar Position'

CSX is in an "unfamiliar position," as Wednesday's earnings report did not consist of its typical big beat and management's tone during the conference was void of any "swagger," Shanker said in a Thursday note.

CSX said it can't identify any trend in its business to justify slower 2019 growth, and removing a low-single digit price increase from the equation, the company appears poised for minimal to zero volume growth, the analyst said. 

Looking back at the company's performance in 2017 and 2018, it was clear management was focusing on "raising the bar," Shanker said. Yet CSX has shifted its tone in 2019 and beyond to "keeping the bar there," he said. 

Investors shouldn't be faulted for moving on to "spicier" precision scheduled railroading stories that could offer superior near-term gains, according to Morgan Stanley. 

Related Link: BMO Switches Tracks On CSX, Citing Lower Visibility

Raymond James: 'Large' Opportunity

CSX's Q4 benefited from multiple tailwinds that helped contribute to an all-time U.S. Class I record high operating margin of 60.3 percent, Brown said in a Thursday note.

The company has room to drive further OR improvements from improved on-time arrival and origination metrics, which the company highlighted as being "significantly better" after a brief deterioration in Q4, the analyst said. 

CSX has a path to improve its OR to the mid-50s, as management said many aspects of its business can be improved to take advantage of "opportunity after opportunity after opportunity," Brown said.

Free cash flow is trending ahead of management's three-year guidance of $8.5 billion, despite expectations for heightened capital expenditures in 2019 and a new $5-billion share purchase authorization, he said. 

CSX's quarterly print shows strong PSR execution and a commitment to improve OR, and this should translate to earnings growth and better free cash flow conversion, in Raymond James' view.

Price Action

CSX shares were down 1.6 percent at $64.34 at the time of publication Thursday. 

Related Link: Citi Bullish On Rail Stocks, Upgrades Norfolk Southern

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