Name: X owner
Employed as: M of W, for 10-20 years
Posted: 13 November 2017
2 Top Railroad Stocks to Consider Buying Now -- and 1 to Avoid
Beware of the turnaround sequel
Shares of CSX jumped more than 20% last January, after word leaked that
activist fund Mantle Ridge would attempt to replicate the turnaround
Bill Ackman's Pershing Square Capital Management spearheaded at
Canadian Pacific. CSX's stock eventually hit an all-time high as part
of the excitement.
Part of the CSX playbook was recruiting 72-year-old Hunter Harrison,
the architect of the CP turnaround, to run the U.S. railroad. Harrison
was named CEO of CSX in March.
CSX freight train in Washington, D.C. Image source: National
Transportation Safety Board, via Flickr.
It's still early in the process, but so far the big winners were the
existing CSX investors who took their gains as soon as the activists
got involved. So far Harrison's playbook of slashing costs and
streamlining operations has at least initially led to service delays
and added rail congestion.
The STB, the industry's regulator, in September held a public session
to hear complaints from shippers about CSX service disruptions.
CSX tends to run shorter routes through more congested, urban areas
compared to its Western and Canadian Peers, making streamlining a more
complicated proposition. The company, thanks to the stock run-up, is
also by some measures the most expensive in the sector. Add in that
Harrison has had health issues and the faith that the turnaround will
be completed and the valuation will be justified must be brought into
CSX, a hodgepodge of dozens of railroads consolidated over a
three-decade span, culminating with the disastrous 1999 takeover of
Conrail, certainly has considerable costs to trim and efficiencies to
be extracted. But previous efforts to do so have ended up as quagmires.
There's no compelling reason to be confident this time will be any
SELL SELL SELL