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Linn Energy, LLC Message Board

  • norrishappy norrishappy Apr 17, 2013 2:04 PM Flag

    I was late to the CSX call. Still

    Opportunity to rail Bakken oil to east coast American markets limited only by Bakken production.

    Maybe limited area stabilization of coal. Export of coal to Europe seems to be stable which is logical given the elites are allowing the co2 'markets' to collapse due to the now long term recessionary economy.

    No big response to higher ngas prices is good news for ng producers of course.

    The wild card remains the German nuclear plants shutting down.

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    • RLP appears to be correct about your CSX buy,
      Life After Coal
      It may be hasty to completely write off coal for the major rails, but it looks like 2013 is shaping up to be another poor year, as natural gas prices still make it a more cost-effective fuel source and coal export volumes to Europe remain weak. While CSX does have some exposure to Illinois Basin and Powder River Basin coal, the historically core Appalachian coal business may be permanently impaired due to the higher production costs.
      In the short term, there's not a lot CSX can do about this. While the transportation of shale oil to Eastern refineries does offer some growth potential, CSX isn't going to benefit from shale-by-rail nearly as much as Berkshire Hathaway's (NYSE:BRK.A) Burlington Northern, Kansas City Southern (NYSE:KSU), or even Norfolk Southern (NYSE:NSC). Likewise, while CSX continues to invest in opportunities in intermodal (including the National Gateway project), it's all but impossible to replace a large (nearly 20% of volume) and profitable business quickly.

      Over the long term, then, I'm not too worried about CSX's revenue performance. The bigger worry is with margins and cash flow conversion. Losing all of this coal volume has forced management to stretch out its target date for the ambitious goal of a 65% operating ratio, and average cash conversion over the past few years has been significantly higher than the long-term average. I do believe the rail industry has made some significant changes that should allow these improvements to stick, but I don't believe investors should completely ignore the risk that this is a peak scenario and that mean reversion could kick in again in a few years' time.
      More: CSX Corp. Slips To Underperform

      The Bottom Line
      I'm relatively ambivalent on most rail stocks today, as I believe investors may be a little too casual about the risks to U.S. economic growth and/or too confident in the possibilities for ongoing margin improvement. To that end, CSX already trades basically in line with historically normal EV/EBITDA, and a cash flow analysis suggests mid-single digit appreciation potential. Rail stocks make sense for investors who think the economy will stage a big second-half rebound, but in terms of likely total return there seem to be higher-potential ideas out there today.

      • 1 Reply to opinionsarelike33
      • In fact the ghost of RLP'D was proven incorrect.

        First CSX is up 20%+ from when it made the foolish statement.
        Earnings just came in significantly better that the analysts expected with no improvement in the coal markets.
        (Good news or LINE and other ng producers)
        dividend increased 7%.
        Now I know you like to run back to the wallow without learning but over 50% of the long term return from dividend stocks come from dividends. ;-)

        Now try to remember. Increasing dividends is not dead money. I know you are out of the practice of thinking but you try and understand a growing dividend.

        More to the point rails are making more money on less economic activity (New Obama Normal) by being more efficient. Like all the Americans investments/companies doing very well in this sad Obama time.

        What rational person could predict our entrepreneurial wild cat in American oil and gas would be forced to focus on efficiency and risk reduction rather than pulling as much oil out of American ground as possible.

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