(By Balachander) CSX Corp. (NYSE: CSX) shares were downgraded to "hold" from "buy" and the price target reduced to $20 from $25 by Deutsche Bank analyst Justin Yagerman, who sees a balanced risk-reward ratio given coal headwinds and a more uncertain economic outlook.
"Despite expected core pricing gains and productivity improvements next year, we believe mix and coal headwinds will constrain earnings improvement as we are now modeling flat year-over-year EPS in 2013," Yagerman wrote in a note.
The analyst said utility coal volumes are expected to continue to decline in the first half of 2013 and export volume comparisons are challenging given lower export thermal forward prices and weaker global economic growth forecasts.
"While we have increased our 2012 EPS estimate to $1.78 (from $1.73) due largely to the Q3 beat and a bigger-than-expected SunRail gain in Q4, we have lowered our 2013 EPS estimate to $1.78 (from $1.98)," Yagerman said.
The analyst sees flat earnings in 2013 as coal volumes appear challenged and core pricing gains moderate due to the mix of more intermodal traffic and fewer export coal volumes constraining top- and bottom-line growth.
Upside risks include better-than-expected export coal volumes, intermodal yield improvement, and productivity enhancements. Downside risks include weaker-than-expected export coal volumes, lower utility coal volumes, pricing headwinds, and the broader economy, Yagerman wrote.
CSX shares, which have been trading in a 52-week range of $19.87 to $23.71, added 0.33 percent to trade at $21.26 on Thursday.