(The following story by Scott Deveau appeared on the National Post website on May 26, 2009.)
OTTAWA The lingering misconception of mismanagement at CSX Corp. is the only plausible explanation for why the railway is trading at a discount to its peers, according to UBS analyst Rick Paterson.
Based on its current valuation, the Jacksonville, Fla.-based railroad trades at 22% price-earnings ratio discount to other top-tier rails. But with stronger pricing power and more room than its peers for margin improvement, Mr. Paterson has a buy rating on the stock and a $51 price target.
CSX was trading at $29.98 a share as of 10:16 a.m. on the New York Stock Exchange Tuesday.
The only pushback we get on CSX relative to the group remains the poor management criticism. Four or five years ago that was probably true, but we think those days are long gone and (mis)perception is lagging reality. These guys know what theyre doing, Mr. Paterson said.
If anything, we believe CSX deserves a premium to the group, not a discount, he added.
As such, Mr. Paterson moved CSX to his top pick Tuesday, replacing Union Pacific, based on its current valuation and its short term opportunities.
He also noted he still prefers Canadian National Railway Co. to Canadian Pacific Railway Ltd. in Canada.
But 'they' haven't figured on the effects of GM's bankruptcy.
GM's woes include owing CSX Amid fallen giant General Motors Corp.'s larger troubles, the beleaguered U.S. auto manufacturer owes CSX Corp. $8.9 million for automotive shipments. CSX hopes to receive some reimbursement despite GM's declaration of bankruptcy June 1. CSX's involvement and exposure is relatively small, given that Detroit-based GM owes creditors roughly $172 billion.
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