CSX Corporation gains after JPMorgan turns bullish despite tough rails backdrop
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JPMorgan upgraded CSX Corporation (NASDAQ:CSX) to an Overweight rating on Wednesday after having it set at Neutral. The firm sees CSX (CSX) as a sector standout, with the overall expectation being that commentary on Q3 rails earnings calls to follow a similar tone as Q2 as management characterizes the market to be generally bouncing off the bottom but staying weaker for longer than originally expected.
However, analyst Brian Ossenbeck and team believe that CSX (CSX) merits a higher multiple due a best-in-class service that is expected to create end market opportunities faster than peers. That distinction is seen as critical as the entire industry now pivots to growth.
Ossenbeck said that while the potential for meaningful truckload conversion and share gain is still over a year away, CSX (CSX) appears to have the right strategy in place to solidify service while also creating onramps to the network in order to facilitate the modal shift.
"The management team also recognized the labor shortage earlier than peers and we believe likely priced better for inflation embedded in its contracts than peers, which under-accrued for the last labor deal."
Looking ahead, the appointment of Mike Cory as CSX (CSX) Chief Operating Office is expected to provide a boost to the collaborative efforts between marketing and operations, while also bringing in an experienced veteran who saw firsthand what happens when the sales organization overcommitted capacity.
Near-term disruptions from the UAW strikes are seen as a near-term headwind, but CSX is seen realizing strong incremental margin gains in the future. On the capital allocation, CSX (CSX) is seen as having the most buyback firepower in the rails sector.
JPMorgan assigned a price target of $40 to CSX (CSX).
Shares of CSX (CSX) moved up 1.49% in premarket trading on Wednesday and swapped hands at the highest level since early August. The dividend yield on CSX (CSX) for new buyers is 1.40%.

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