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CSX Has Likely Peaked

Jun. 10, 2019 3:17 PM ETCSX Corporation (CSX)17 Comments
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  • CSX's top line continues to grow.
  • Total rail traffic is slowing, which signals the economy has peaked.
  • CSX remains a sell.
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Source: Wall Street Journal

Source: WSJ

There is a lot of debate over whether the economy is strong or whether we are already in the throes of a recession. Recessions are difficult to predict because no one knows when the government will stop providing low interest rates or tax cuts. One metric that could predict the next recession is rail traffic. For the month of May, U.S. rail traffic and intermodal units were down 4.1% Y/Y. Through the first 22 weeks of 2019 combined U.S. traffic and intermodal units were down 2.4% Y/Y. Industrial output has fallen. Another factor in declining rail traffic could be economic uncertainty pursuant to trade tensions with China.

Nonetheless, CSX's (NASDAQ:CSX) revenue is growing by mid-single digits. In Q1 2019, the company generated revenue of $3.0 billion, up 5% Y/Y.

CSX Q1 2019 revenue

Revenue growth was based on an increase in price and volume. Total volume was up 4% Y/Y while revenue per unit rose 5%. On a product basis, revenue growth was broad-based with Construction-related products leading the way, up by double-digits. Revenue from Coal and Agricultural products both rose by 7%.

Construction was driven by Forest Products which experienced increased volume due to export demand for pulp and building products. Construction revenue could stay strong as long as interest rates remain low. Agricultural experienced volume increases from domestic and export grain markets. I expect this to change by the second half of 2019 if China stops purchases of soybean and other agricultural products. Coal increased due to domestic steel production.

The Industrial segment represents over 35% of CSX's revenue and its future growth (or lack thereof) could drive the narrative. It also commands the highest price at $346 per unit. The segment also includes Automotive products, which could be hurt by a decline in auto sales if consumers become worried about the future.

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This article was written by

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The Shock Exchange has a B.A. in economics and MBA from a top 10 business school. He has over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, financial literacy program based in Brooklyn, NY.His book, "Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead", predicted pain ahead for the U.S. economy and financial markets.In 2014 the law firm of Kirby, McInerney, LLP brought a class action lawsuit against Molycorp, Inc. for "materially misleading statements" in its financial statements. Kirby, McInerney used investigative journalism from the Shock Exchange to buttress its case. That's the discipline the Shock Exchange brings to every situation he covers for SA.

Analyst’s Disclosure: I am/we are short CSX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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