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9 pts

Opinion on  CSX Corp. (CSX)     Sector: Transportation  >  Industry: Railroads
ETFI Global Railroad PerformIdex: Stock Prices Adjust to Lower Volumes

Nov 09, 2008 01:37 AM GMT
Mikerun
Return Risk
+1.04% MID
Principal

ETFI Global Railroad PerformIdex: Stock Prices Adjust to Lower Volumes


The ETFI Global Railroad PerformIdex includes 41 companies with market caps over $200M and is structured as a market cap weighted index, with a total return of -12.7% over the past year, as compared to a decline of 20.7% for IYT in the last year and 22.8% for PTRP since its launch in mid-September. Benchmark transport ETFs already on the market include the iShares Dow Transports (IYT) (five duplicate companies) and the PowerShares Progressive Transport (PTRP) (nine duplicate companies). Also, the weighted average dividend yield is 1.7% for the Railroad Index versus just 1% for IYT.

An article posted today on Seeking Alpha debates whether the major North American rail transport companies – such as Union Pacific (UNP), Burlington Northern (BNI), Canadian National (CNI), Norfolk Southern (NSC), CSX Corp (CSX), and Canadian Pacific (CP) – will be able to maintain their pricing power in the face of a global economic slowdown and declining volume of commodities being shipped. A notable exception to the lower volumes in both the U.S. (-5.4%) and Canada (-9.3%) is coal [a web link to my review article on global coal prices], which increased by 3.4% and 10%, respectively.

The major North American rail transport companies are currently trading at the following trailing 12-month P/E ratios and dividend yields: UNP (14.6X, 1.8%), BNI (14.1X, 2%), CNI (11.5X, 2.1%), NSC (12.4X, 2.4%), CSX (12X, 2.1%), and CP (10X, 2.2%) – with the two Canadian rails pricing in more of a slowdown in volumes and profits, which is validated by the recent data. In spite of the lower volumes, railroad companies may still offer investors good returns from current levels if they can maintain earnings growth of at least 12%, which is about the same as the average PE for the six major rails listed above.


CSX:  This call was made on 11/09/08 @ $43.75
Rating:   Positive   $43.75 (11/09/08)
Closed:   11/16/2008 @ $38.36 (-12.32% in 7 days)


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