CSX (CSX) is right. It is ripe. And I think it has to be bought.
That's the twin takeaway from listening to the Joy Global (JOY) conference call, where the company quite simply called the bottom in coal, and then chatting with CSX CEO Michael Ward.
First, the background. With the coldest winter since 1977, you better believe that we are going to use a lot of coal, as 40% of our electricity is powered by the stuff. So, finally, the inventories have been worked off. Not only that, but with natural gas at $4 the competitive advantage is lost for those utilities that can switch. So, it made sense when Joy said that they've seen the bottom.
Now I have no desire to buy Joy Global. Been there, done that (although I expect an upgrade or two after that call).
It's CSX that I am interested in. You see its competitors -- at least in mindshare as there are no real competitors in the train business -- Union Pacific (UNP) and Norfolk Southern (NSC) have been able to shrink their coal businesses as a percentage of total business, something that the really coal-heavy CSX hasn't been able to do. That's how they became such huge stocks in the last six months.
CSX, on the other hand, has done very little. In the last year, Union Pacific has gone to $185 from $106 and Norfolk Southern has gone to $94 to $63, while CSX has traveled to $28 from $24. That's all because of coal, as the rest of the businesses have been roughly comparable. But Coal down 9% for CSX destroyed whatever was going right, including 10% intermodal growth.
Now with coal volumes going higher, Joy just said and CSX confirmed to me, you can make the case that the numbers for this excellent railroad are just too low, especially because there have been no new earnings updates from analysts since the last quarter, which was reported in the middle of January.
To me CSX, has some catching up to do. If it is like what happened to Norfolk Southern when they were, at last, able to say that the damage from coal was done. Then a 10% move could happen in a blink of an eye, which is just what I think is about to occur.