CSX CorporationCSX

Morningstar Rating

Stock Research and Analysis

by Keith Schoonmaker

CSX continues to improve its performance after initiating a recovery plan several years ago. But despite significant progress, the company remains one of the less profitable Class I railroads; our interest in CSX is as a turnaround play. Although we Read more

Bulls Say

CSX had improved operations significantly during the last four years. On-time originations and arrivals, safety, dwell time in terminals, and velocity have steadily and significantly increased during recent quarters, continuing trends that began in 2004.

Coal traffic generated 29% of CSX's revenue during 2008, giving the firm one of the highest proportions of this noncyclical freight among Class I railroads.

Compared with trucking, shipping by rail is less expensive for long distances, is 3 times more fuel-efficient per ton shipped, and does not contribute to highway crowding.

CSX serves the eastern United States, where two thirds of the population lives.

CSX is doing what it takes to improve its operating ratio. Starting with trimming more than a fifth of its management in 2003, CSX has decreased labor expense from 40% of revenue to less than 30%. Read more

Bears Say

CSX is improving, but its operating ratio remains among the poorest in the railroad industry.

Unlike trucking firms, railroads must purchase and maintain their road. High-maintenance capital expenditures consumed an average of 15% of CSX's revenue during the last five years.

Although coal and grain are robust cargo, railroads like CSX cannot escape the cyclicality of the broader economy. We expect volume to continue to decline during 2009. Read more

Strategy

CSX has sold divisions that distracted from its core rail operations. The firm can take advantage of continued health in the rail market by increasing prices via higher rates and more complete fuel surcharges. Read more

Management

We don't have a problem with most of CSX's management or corporate-governance policies, but we do object to a couple of things. Since January 2003, when Michael Ward took the reins as chairman, president, and CEO, the firm has generated impressive results. Read more

Profile

CSX is a $10 billion railroad operating in the eastern United States. On its 21,000 miles of track, CSX hauls shipments of coal products (29% of consolidated revenue), intermodal Read more

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