It wasn't long ago at all that the rails seemed to have things pretty
much all going their way. Better management was producing better
margins, pricing advantages over trucking were leading to good
intermodal growth, and a recovering economy was supporting higher
traffic and strong pricing. Then came a structural shift in electricity
generation and a serious drought that hammered both coal and
agricultural volumes.
To its credit, eastern rail operator CSX (NYSE:CSX)
is rolling with the punches. The company is largely through the worst
of the volume reset caused by declining coal demand, and while
management has stretched out its margin improvement targets, there's
still a pretty good case to be made for solid operating performance over
the next few years. Unfortunately, the market has been quick to
anticipate this and the shares don't look like a tremendous bargain
today.
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