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Barclays Says CSX 'Could Be Viewed As Cheap'

Barclays said CSX Corporation (NASDAQ: CSX) could be viewed as "cheap" as shares trading only 0.95x the S&P 500. That said, the brokerage maintained its Equal-Weight rating saying the free cash conversion is "subpar" relative to many "quality" industrial stocks.

Powered by cost control, CSX's second quarter earnings of $0.47 a share beat Barclays' $0.42 estimate as well as consensus' $0.44.

"Margins were better than many had feared, especially considering 2Q's nearly unprecedented 34% decline in profitable coal revenue. Perhaps we are near the bottom for CSX and other rails given stability in June volume trends, a favorable outlook for agriculture markets and consistent measures of US economic expansion," analyst Brandon Oglenski wrote in a note.

However, the analyst is concerned on broader transport data that has yet to turn overtly positive and a prohibitively high USD, which is likely to hurt export and commodity markets. Nonetheless, low interest rates continue to help markets.

"We suspect a large debate will surround the capex outlook into 2017 following several years of significant growth investments by rails. A lower capital spending outlook could help continue the bullish rally in railroad equities," Oglenski noted.

Accounting for improved cost control, the analyst raised his 2016 and 2017 EPS estimates to $1.72 and $1.85, respectively from $1.65 and $1.80.

At time of writing, shares of CSX rose 2.94 percent to $29.04. The analyst has a price target of $26.

Jul 2016CitigroupMaintainsBuy
Jun 2016OppenheimerInitiates Coverage onMarket Perform
May 2016CLSAInitiates Coverage onUnderperform

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