Outlook '08: Off The Rails


Does the rollover in rail stocks signal a recession is looming? Find out from CSX Chief Michael Ward.

What are you seeing as a trend?

“We’re seeing in Q4 that revenues are up but volumes are slightly down,” says Ward. “And as we look forward into ’08 we see a mixed bag. Overall we anticipate modest increase in volume and nice increase in revenue. “

He adds, “But we’re expecting great growth in the coal market especially in the export market. The value of the dollar and the ocean freight rates have made American coal very attractive in Europe. In addition we’re seeing great growth in the ethanol business.”

What about challenges?

“We see some challenges in the housing market and the automotive market,” says Ward. But overall we expect modest growth – not a recession.”

Do you think the current proxy fight will become a distraction?

“We’re going to stay very focused,” says Ward. “Over the past 3 years we’ve been in the top 10% of the S&P in creating value for our shareholders. We’re intently focused on continuing to do that going forward and we feel very good about our guidance of 15% - 17% growth.”

Why not invite some of the activist investors on your board and do away with the proxy contest?

“We have an excellent board and they have helped drive the improvements in safety, service as well as the earnings increase,” replies Ward. “Why do we need the change?”

But you’re not as efficient as your competitors?

“We have outperformed all the rails and most of the S&P over the past 3 years,” replies Ward. “And we’ve said we’re going to drive the operating ratio down to the low to mid ‘70’s which will be a significant improvement.”

Dylan Ratigan asks the panel what they think of this stock?

Guy Adami likes CSX Corp. (CSX) if it dips to $40, as well as Burlington Northern (BNI) at current levels.


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