CSX: Board a Blue-Chip Train

06/20/2003 12:00 am EST

Focus:

John Buckingham

Editor, The Prudent Speculator

"Not since 1939 has the third year of the Presidential cycle seen the S&P 500 suffer a decline and 2003 is on course to continue this trend," notes John Buckingham, editor of the highly successful The Prudent Speculator . "With interest in equities just starting to pick up, a ton of money still residing on the sidelines, and investor-friendly legislation, we can’t help but still be bullish on the near- and long-term prospects of our undervalued stocks."

"Although high fuel costs and severe winter weather impacted the bottom line in the first quarter, we continue to like CSX Corp. (CSX NYSE), the owner of the largest freight rail network in the Eastern US. The company provides rail transportation services over a 23,000 route-mile network in 23 states, the District of Columbia, and two Canadian provinces. The firm also provides intermodal and global container terminal operations through other subsidiaries. In addition, the company has a 42% economic interest in Conrail, the primary freight railroad system serving the Northeast US. As many are aware, former CSX chairman and CEO John Snow was appointed Secretary of the Treasury by President Bush in February.

"Operating profits in the first quarter equaled $0.20 a share on revenues of $2.02 billion. While the numbers were not that exciting, given that operating earnings totaled $0.32 per share in the year-ago period, they did come in better than expectations as analysts were looking for net income of $0.17 and revenues of $2.0 billion. New CEO Michael Ward indicated that he expects second quarter earnings to be ‘a little better than the $0.60 in earnings per share of a year ago.’ In addition, CFO Paul Goodwin said that CSX is still on track to see free cash flow (after capital expenditures of $1 billion to $1.1 billion) generation of $300 million for all of 2003.  With traffic volumes likely to pick up as the economy improves and CSX having become much more efficient, we think the company will deliver health earnings growth over the next few years. Consensus estimates for earnings are $2.26 a share this year and $2.78 next. Because financially-sound CSX trades for 1.1 times book value and yields 1.2%, we would board this blue-chip train up to $33."

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