Recently, there was some CSX news that I found interesting. In Kentucky some coal miners decided that it would be a good idea to blockade a train that is owned by CSX Corp (NYSE:CSX). Apparently they were doing this in protest of the fact that they hadn’t been paid in a month following the bankruptcy of their employer, Blackjewel LLC.
This news really shouldn’t — and didn’t — have any direct effect on the price CSX stock. However, I am a Wall Street history junkie. Railroads and labor unrest have been a big part of its history, so this headline definitely got my attention.
Analysis of the railroad stocks can potentially give great insights due to their economic sensitivity. With all the talk about trade wars and a possible recession coming, I decided to take a closer look at CSX and its most recent earnings report.
2019 Second Quarter Highlights
On July 16, CSX released its second-quarter 2019 earnings report. Investors were clearly not happy. The CSX stock price dropped by more than 10% in just one day. Earnings were $1.08 versus analysts estimates of $1.11. Revenue was $3.06 billion while the Street was looking for $3.14 billion. On the surface, this seems a little light, but really not all that bad. So what is going on here?
What likely caused the most concern among shareholders was the fact that the company revised its fiscal year 2019 revenue guidance downward. It now sees a 1%-2% decline for the year. This is significantly below the previous guidance of being up 2%.
In my opinion, what was probably even more concerning to shareholders were some cryptic comments that were made by the CEO. “The present economic backdrop is one of the most puzzling I have experienced in my career,” said Chief Executive James Foote. Coming from a seasoned industry veteran with more than 40 years experience, it isn’t surprising that some astute investors took this as this as a reason to head for the exits.
Some would argue that bearish indications for CSX were starting become apparent last year. For example, between 2017 and 2018, net income dropped from $5.47 billion to $3.31 billion. As a result of this, annual earnings fell from $5.98 to $3.84 per share. Both of these declines were significant.
What Is Next for CSX Stock?
I think that as long as there is economic uncertainty and growing concerns about a potential recession, CSX stock will continue to trend lower. Railroad companies tend to be very sensitive to the economy, so there will be some headwinds facing the company.
If CSX does continue to head lower and you are considering buying it, you may want to consider pulling the trigger if it gets back down to the levels around $60. This is where the stock found a bottom during last Decembers stock market rout. Because of this these is a good chance that these levels will be support again.
As of this writing, Mark Putrino did not hold a position in any of the aforementioned securities.
