Sterne Agee Raises Price Target On CSX (CSX)

Sterne Agee is raising its price target on shares of CSX Corp. CSX to $75 after the railroad operator reported much better than expected earnings. It reiterates its Buy rating on shares. In a note to clients, Sterne Agee writes, "...we are beginning to realize that the profits being driven by the Export Coal franchise are much larger than we expected and likely to continue into 2011, given recent problems with flooding in Australia. CSX appears to be winning share from its Eastern Competition. Between 2010 and 2009, CSX increased its Export tonnage by about 7.5 million tons. Coking Coal/Iron Ore increased by 2.2 million tons, and utility-related coal shipments declined by about 7 million tons. All told, this mix shift resulted in a 1.6% tonnage increase driving a 5.6% increase in Coal RTMs, implying a 3.9% increase in avg. length of haul and a 13.5% increase in Revenue per RTM. At about a 58% incremental margin, per our estimates, that implies the rest of the CSX franchise is generating an incremental margin closer to the 42% range." Sterne Agee goes on to say, "Target. We caution investors that what is a benefit to 2011 could potentially reverse in 2012 and weigh on EPS growth. Based on guidance of 5-10 million greater export tons, we are raising our 2011 EPS from $4.65 to 5.15, and our 2012 EPS estimate rises from $5.25 to $5.50, reflecting 15% EPS growth less the given back of the excess 5-10 million tons. On the higher mid-cycle EPS figure, and adjusting for a lower discount to 2012 EPS, we raise our price target from $65 to $75." Shares of CSX gained $2.54 yesterday to close at $70.25, a gain of 3.75%.