(The following story by Scott Deveau appeared on the National Post website on May 26, 2009.)
OTTAWA — The lingering misconception of mismanagement at CSX Corp. is the only plausible explanation for why the railway is trading at a discount to its peers, according to UBS analyst Rick Paterson.
Based on its current valuation, the Jacksonville, Fla.-based railroad trades at 22% price-earnings ratio discount to other top-tier rails. But with stronger pricing power and more room than its peers for margin improvement, Mr. Paterson has a “buy” rating on the stock and a $51 price target.
CSX was trading at $29.98 a share as of 10:16 a.m. on the New York Stock Exchange Tuesday.
“The only pushback we get on CSX relative to the group remains the “poor management” criticism. Four or five years ago that was probably true, but we think those days are long gone and (mis)perception is lagging reality. These guys know what they’re doing,” Mr. Paterson said.
“If anything, we believe CSX deserves a premium to the group, not a discount,” he added.
As such, Mr. Paterson moved CSX to his top pick Tuesday, replacing Union Pacific, based on its current valuation and its short term opportunities.
He also noted he still prefers Canadian National Railway Co. to Canadian Pacific Railway Ltd. in Canada.