Is CSX an Unstoppable Machine?

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It's no secret: Kids love trains. As an investor, I must be channeling my inner child, because I am fascinated by the resilient performance of the U.S. railroads through this challenging economic environment.

CSX (NYSE: CSX  ) has done it again. The hauler delivered outlandishly strong earnings results given the clear loss of momentum observed elsewhere within the domestic economy. The railroad achieved a 13% boost to revenue to strike a new quarterly record at $3 billion, harnessing modest overall volume growth by means of impressive pricing power to deliver a 22% surge in net income. Furthermore, thanks to a shrinking share count, CSX's $506 million haul equated to a 28% boost in per-share earnings.

Intermodal traffic (shipping containers) increased by 8%, but here again it was the pricing power exhibited by a 15% rise in per-unit revenue that drove the segment's contribution to CSX's successful quarter. Epitomized by FedEx's (NYSE: FDX  ) strategic arrangement with Norfolk Southern (NYSE: NSC  ) , freight continues to move off U.S. highways and onto the rails, providing further fuel for the industry's countercyclical strength.

Corroborating recent observations from Peabody Energy (NYSE: BTU  ) regarding the gathering strength of a global supercycle for coal, CSX increased its 2011 guidance for coal export volumes to between 42 million and 45 million tons. That represents a remarkable 40% to 50% increase over corresponding volume for 2010, reflecting the dramatic structural shift within the domestic coal industry as a result of pan-Asian demand. Arch Coal (NYSE: ACI  ) had previously forecast 105 million tons of coal exports nationwide in 2011, but I encourage Fools to stay tuned for positive revisions to that estimate during the second half.

On the strength of those powerful underlying trends in intermodal and coal traffic, CSX issued long-term guidance that calls for a compound annual growth rate of between 18% and 20% for the company's per-share earnings through 2015! When a reliable dividend payer with a shrinking share count starts telegraphing long-term earnings growth of that magnitude, discerning Fools -- each cheered on by their own inner child -- simply must take notice. Click here to join me in keeping a close eye on CSX using The Motley Fool's My Watchlist feature, and consider climbing aboard this long-term train of reliable shareholder returns.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Peabody Energy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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10/24/2016 4:00 PM
CSX $30.41 Up +0.12 +0.40%
CSX CAPS Rating: ****
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