What's Driving CSX's Future?http://www.fool.com/investing/general/2013/03/07/whats-driving-csxs-future.aspx Isaac Pino, CPA
March 7, 2013
Over the past decade, Class I railroad CSX (NYSE: CSX) has decreased its operating ratio from 88% in 2003 to 71% in 2012. Railroad investors care about this measure of efficiency because a lower ratio leads to higher earnings before interest and taxes, or EBIT, which results in a healthier bottom line, all else remaining constant. And railroad operators dream of this type of a turnaround, from a laggard to one of the leaders in the industry.
The flip side of CSX's operating ratio is an EBIT margin that's ballooned from 11.6% to nearly 29% in less than ten years. Not surprisingly, the stock performance has closely mirrored CSX's earnings growth. As net margins grew from 3.2% in 2003 to 15.8% recently, CSX's stock proceeded to wallop the market, returning 420% versus the S&P 500's 82% return.
Of course, the industry as a whole is currently confronted with some unnerving secular trends, specifically rock-bottom natural gas prices leading to declines in coal traffic. Will these two commodities thwart CSX's plan to decrease its operating ratio and ultimately lead to lower profits for shareholders? To answer that, we've compiled a premium research report with in-depth analysis on CSX's future prospects. Today, you can get a sneak peek into this report and see just how CSX can deliver consistent growth despite strong headwinds in the all-important domestic coal markets: