CSX Corp (CSX)

(Market call Minute) Likes the rails. You could own this whole group. There is a secular tail wind.

Infrastructure is hard to replicate. Worked through some issues with coal. They are diversified in what they carry. There were autos, fertilizer, housing supplies and Intermodal. The multiple does not represent a huge discount but thinks there will be earnings growth behind it and that there will be a little multiple expansion to come.

This is his preferred name in the rail space. The best performing class 1 in the US, year to date. Good execution story and good management. Likes the leverage to all things that are recovering in the US. They transport everything from fertilizer to furniture to autos to chemicals, etc. Coal became a problem for them, but management made adjustments for that. He can see this going to the $29 level.

This is still trading at a fairly low multiple compared to its peers. 11X PE versus Canadian National (CNR-T) at 16 or 18 times. Likes their exposure to the coal industry. Last quarter they reported that revenues domestically for coal are up 6% year-over-year. They plan to grow by about 10%-11% going forward to 2015.

Doesn’t own US rails but if he did this would be top of list. Valuation is compelling. Have an objective to move operating ration down over next few years. Struggle they have is that they were a coal mover (20% of business) but were quite successful at replacing that. Probably a good option. Avoid the idea of averaging up.

Don`t add to your position, sell or hold. Harvest it and sell. There are 6 players across North America and this is a better name. Doesn`t see much growth. Valuation is looking a little stretched in all these names.

This is a “go to” name. 30%-35% of their business is shipping coal. Coal demand is weak but the other part of their business is tied to the US economy and that is what has powered the stock higher. Smart capital allocators. Always buying back shares and raising their dividend.

Over the last couple of quarters they have been able to demonstrate that they can overcome the coal headwind in the diversity of their model. They own a network and she thinks that as there is greater and greater congestion and more goods moving, it is a valuable thing to have and it can’t be replicated. The biggest opportunity she seems is on the intermodal side in partnering with the trucking companies to provide long haul service. It seems to be in the very early stages of this trend.

Canadian National (CNR-T) versus CSX Corp (CSX-N)? Likes the rail industry generally because of the economic sensitivity. As the US economy picks up, goods have to be moved. Prefers Canadian national even though it is more expensive.

Exposed to the eastern seaboard in the US. Has moved nicely over the year and reported really good earnings. One-year target of $28-$29.

CSX Corp (CSX-N) or Norfolk Southern (NSC-N)? He doesn’t own either of these, but his preference would be with CSX. It trades at a better multiple. Management is taking the operating ratio down. It is just north of 70 right now and they want to move it into the 65 range. They have found substitutes for their coal business. Have been quite successful, whether it is chemicals or automobiles.

Good strong class 1 east coast railroad. One of the only big rails that you can buy at a decent valuation. Good balance sheet. Rail volumes are starting to improve. If you believe in the US housing recovery, although at a slower pace as he does, and if you believe the economy in the US is going to continue to get better, this will participate very nicely in that. Ships chemicals, housing products, furniture, autos as well as coal and grains. Coal is baked into the stock price and grain shipments are down about 11%. They are doing everything they can to offset these 2 things. The other opportunity for them is crude on rail, which is going to be a multiyear story.

Crude by rail is a theme that is going to be important going forward. However, you need to be in the right geography. This is an east coast hauler. About 60% of their revenue is hauling merchandise to various cities. He would prefer a Union Pacific (UNP-N) if you want exposure to crude by rail. Or even Canadian National (CNR-T) and Canadian Pacific (CP-T).

This is a great investment. Over time they are going to grow their rail network and he thinks they are going to benefit from improving demand for coal and an improving US economy.

Model $27.91, 23% upside. But he sees it going back to $20.20 where it would be a good buy.