Citi analysts: CSX a "must-own" as earnings growth accelerates

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The company was upgraded to a buy status by analysts.

Jensen Werley

Reporter- Jacksonville Business Journal

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Citigroup research analysts upgraded CSX from neutral to buy on Thursday, naming the company a "must own."

Saying the Jacksonville-based railroad company "is in the early stages" of earnings per share growth acceleration, the analysts raised its target price for the company (NYSE:CSX) from $34 a share to $41.

After dropping from its opening price of $37.27 Thursday, the stock has been slowly but steadily rising today.

The Citi analysts said they were upgrading their view in part because of the company's re-focusing on costs in the wake of Canadian Pacific Railway Ltd. pitching a merger to CSX.

Another reason for the boost is that the company has nowhere to go but up, the note said. "CSX also has the highest operating ratio of the industry, providing potential for margin and EPS [earnings per share] improvement longer term," the note says.

Operating ratio is a measurement of how efficient the railroad is, with a lower number reflecting greater efficiency: In the third quarter, for which results were released in October, CSX had a ratio of 69.7 percent, a 2.22 percentage point improvement.

Earnings per share were 51 cents in that quarter, up from 45 cents a share in the year-ago quarter.

Earnings per share were 42 cents in the fourth quarter of last year ; the Citi analysts raised their expectations to 49 cents for the fourth quarter of 2014.

The company is in the process of growing its earnings by a rate in the mid-teens, according to the analysts, after eight quarters of earnings per share growth less than 10 percent.

At the Credit Suisse Global Industrials Conference on Wednesday, CSX chief financial officer Fredrik Eliasson told investors and analysts that the company is on track this fourth quarter and service is stable.

Jensen covers logistics, manufacturing and defense