- Quick Take
- The automotive sector and housing starts drive around 9% and 6% of CSX’s overall volumes, respectively.
- The recent recovery in the U.S. housing sector and continued growth in the automotive market bode well for recovery in the U.S. economy. These trends are also expected to positively impact CSX’s shipments in these sectors.
- Light vehicle production in North America, which has grown rapidly over the past few years, is expected to keep growing on account of factors such as population growth and higher vehicular age in the U.S.
- The U.S. housing starts, which remain well below the average level recorded during 1960-2010, grew by 27% annually in February 2013 indicating recovery in the housing sector. Experts forecast housing starts to reach normalized levels by 2015.
CSX Corporation (CSX) is a leading railroad company in the eastern U.S. Around 16% of its overall volumes are tied to the housing and automotive markets. The recent recovery in the U.S. housing market coupled with growth in the automotive sector bode well for recovery in the U.S. economy. These trends are also expected to positively impact the railroad sector.
The U.S. automotive sector is growing driven by higher vehicular demand in the country. The North American light vehicle production was recorded at 15.4 million units in 2012, which was around 80% higher than the figure recorded in 2009. It is expected to keep growing over the coming years, positively impacting CSX’s automotive shipments.
U.S. housing starts, which are used to measure activity in the housing sector, grew by 28% annually in February 2013. While the figure remains much below the average level witnessed over the past five decades, the strength in the U.S. housing sector is expected to continue and experts forecast normalized levels of housing starts to return by 2015.
Continued Growth In The Automotive Sector Will Drive Automotive Shipments
North American Light Vehicular Production
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|Annual Growth|| |
Source: Global Insights
Automotive shipments account for around 9% of CSX’s overall volumes. Spurred by higher demand, the automotive sector in the U.S. has been performing well over the last few years. The North American light vehicle production was recorded at 15.4 million units in 2012, representing an increase of around 79% over the level recorded in 2009. It is further estimated to grow over the coming years driven by population growth, high vehicular age and favorable economics for production in the U.S. In 2013, the figure is estimated to grow, albeit at a smaller rate of 3%.
Increased vehicular production in the U.S. also supports CSX’s automotive shipments. CSX’s automotive volumes grew by 18% annually in 2012. While the automotive volumes were down by around 2% y-o-y in the first eight weeks ending February 22, 2013, on account of difficult y-o-y comparisons and the loss of a contract, we expect automotive shipments to post positive growth in 2013.
Recovery In The Housing Market Bodes Well For Lumber Shipments
Housing starts are responsible for driving around 6% of CSX’s overall volumes. While housing starts remain much lower than the average 1.5 million recorded during 1960-2010, they have recently witnessed an uptrend indicating recovery in the housing market. In February 2013, housing starts were recorded at 917,000, representing a y-o-y increase of 28%.
The recovery in the U.S. housing market is expected to continue and experts estimate housing starts to reach normalized levels of about 1.6 million by 2015. We expect this to drive higher shipments of products such as lumber and building products, stone, glass, etc., in the future.
Our $22 price estimate for CSX is around 5% below the current market price. Our low valuation for the company is mainly on account of weakness in the coal market.
Disclosure: No positions.