William L. Moore
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BMO Analysts Raise Price Target On CSX

BMO Capital reiterated its Outperform rating on CSX Corporation  and lifted its price target to $32 from $29.

According to the analysts, CSX's implied Q2 decremental margin is around 30 percent, while the year-to-date figure is 25 percent. They believe this performance underscores the high degree of success in terms of improving the cost structure, particularly given the majority of the decline due to weakness in the higher-margin coal segment.

"CSX did, in fact, raise its cost savings target this year to $350 million from over $250 million prior having already achieved $229 million in H1/16," wrote BMO.

As a second positive aspect, the analysts mentioned the fact that pricing continues to track around 2.9 percent. "With expectations of moderating volume headwinds later this year and into 2017, we believe CSX is set up to deliver improvement in EPS from Q4/16 (flat to potentially slightly up) and into 2017 (likely in the low double digits)," they added.

The analysts believe the increased visibility into volume improvements could lift valuation further, but at this stage, they think the upside in the share price is probably EPS-dependent.