Investors are paying closer attention to railroad shares these days, for a quartet of good reasons. Earnings look solid, the business outlook is improving, Wall Street is getting more positive on the stocks, and mergers are reshaping the sector.
The latest piece of positive news came from CSX (ticker: CSX), which reported its first-quarter numbers after the close of trading Tuesday. The railroad earned less than Wall Street had anticipated, but sales were better than expected.
CSX earned 93 cents a share from more than $2.8 billion in sales, while analysts had projected 96 cents a share and just a hair under $2.8 billion of sales.
J.P. Morgan analyst Brian Ossenbeck didn’t think the miss mattered, saying in a research note on Tuesday that investors likely would chalk it up to terrible first-quarter weather in places such as Texas.
He seems to have been right. CSX stock rose 4.7% in midday trading Wednesday, while the S&P 500 and Dow Jones Industrial Average, for comparison, were up 0.3% and 0.5%, respectively.
Part of that gain may stem from an upbeat call on the stock from BMO. Analyst Fadi Chamoun upgraded the shares to Buy from Hold and increased his target for the stock price to $105 from $95 a share. CSX closed Tuesday at $98.45.
“Consistently strong execution, significant cyclical tailwinds....improving pricing outlook, benign cost inflation, low capital intensity,” all stand to benefit the company, he said. Not only are things are getting better for railroads as the global economy recovers, but all the factors Chamoun cited mean more free cash flow and better returns for investors.