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Rail News: Rail Industry Trends

UBS analyst weighs in on CSX ‘valuation disconnect’


UBS Securities L.L.C. analyst Rick Paterson has been fielding calls lately asking why CSX Corp.’s stock is trading at a 22 percent price-to-earnings discount compared with its rail peers, and the team at UBS “can’t think of a good reason,” Paterson said in a research note issued Tuesday.

The lack of an explanation could mean there simply isn’t one and that the “valuation disconnect will be short lived,” said Paterson, who thinks CSX’s stock should be trading at a premium compared with the rail group. Paterson, who has a “buy” rating on CSX and a 52-week price target of $51, cited two reasons for that view: The railroad has more pricing power than any other Class I, and that even though its operations “have gone from poor to average” during the past few years, there’s still room for improvement — and that’s good news for CSX’s earnings before interest and taxes margin, he said.

The only “pushback” Paterson said he gets for CSX relative to other rails is the “poor management criticism.” Although that might have been the case three or four years ago, UBS thinks  “those days are long gone and [mis]perception is lagging reality,” Paterson said.

— By Desiree J. Hanford. A Chicago-based free-lance writer, Hanford covered the equities market, including transportation, for Dow Jones & Co. for 10 years.


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More News from 5/27/2009