CSX (CSX 0.27%) will release its quarterly report on Wednesday, and like peers Union Pacific (UNP 0.31%) and Norfolk Southern (NSC -0.11%), CSX shares have hit their best levels ever recently. Yet among its competitors, CSX arguably has even further room for growth if it can take better advantage of some of the opportunities that Union Pacific in particular has capitalized on in recent years.

One of the most surprising things about how resilient CSX and other railroad stocks have been is that conditions have been terrible in many of the commodities markets that account for much of railroads' traditional shipping volume. In particular, CSX and Norfolk Southern have had some geographical disadvantages compared to Union Pacific that have made them even more vulnerable to adverse conditions in the coal industry. But even with poor coal volume weighing on revenue, CSX and its peers have looked to other sources for shipping growth. Let's take an early look at what's been happening with CSX over the past quarter and what we're likely to see in its report.

Photo credit: Wikimedia Commons/Nate Beal.

Stats on CSX

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$3.00 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can CSX earnings grow faster this quarter?
In recent months, analysts have had mixed views on CSX earnings, raising their full-year 2013 estimates by $0.04 per share but cutting their 2014 projections by $0.02 per share. The stock has powered ahead, rising 15% since early October.

CSX's third-quarter results show how the railroad industry has adapted to changing conditions among its customers. The company overcame a 9% drop in coal-related revenue by boosting its movement of chemical and intermodal shipments, leading to a 4% jump in total sales from the year-ago quarter and sending earnings up a modest 2% year-over-year. In particular, the chemicals necessary for hydraulic fracturing and other unconventional energy production methods at shale plays across the continent have opened up opportunities for CSX as well as Union Pacific and Canadian rivals Canadian Pacific and Canadian National, and CSX is working hard to use that demand to keep its traffic up.

Yet even with lucrative markets like automobile shipping and intermodal transport, CSX's geographical disadvantage causes problems. Union Pacific, BNSF, and Kansas City Southern (KSU) have more direct access to the West Coast than CSX and Norfolk Southern do, making it easier to serve high-growth Asian markets and the high volumes of trade that flow around the Pacific Rim.

The big hope for CSX is that markets for thermal coal could potentially rebound this year. With natural gas prices having hit bottom and actually rebounded substantially from 2012 lows, power plants are likely to keep current levels of coal demand stable. CSX has focused on low-cost coal areas in the Powder River and Illinois Basins to stay competitive, and that could help keep coal volumes flat or growing slightly from 2013 figures. At the same time, CSX could also benefit if exporters of coal take greater advantage of demand in the global coal market.

In the CSX earnings report, watch to see how the company's tests of natural-gas powered train engines are progressing. With the ability to switch from higher-cost diesel, changing fuel could help CSX and its peers cut their expenses and boost their profits -- a welcome sign that could send stocks climbing even further.

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