What Hunter Harrison's Passing Means for CSX
The railroading legend set a new standard for the operating margins and asset efficiency North American railroads can accomplish.
CSX (CSX) announced on Dec. 16 that its CEO Hunter Harrison, 73, has died. Harrison started his career as a laborer at the Frisco, and ended it after he turned around three large railroads from near-worst-in-class performance to best. Harrison set a new standard for the operating margins and asset efficiency North American railroads can accomplish.
We reduced our fair value estimate Friday to $51 from $54 as we incorporated slower operating ratio improvement than we assumed prior to the announcement of his medical leave. We maintain this updated fair value estimate, but we expect the market to punish shares even more severely than Friday's 7.6% decline. Were shares to decline to the $45 range (4 stars), we would consider this a buying opportunity.
Two months ago CSX hired James Foote, 63, as COO, and we expect the board will rely on Foote to continue implementation of the precision railroading model; this may include promotion to CEO. Foote led Canadian National's (CNI) sales group from 2000 to 2009, while Harrison was COO of CN from 1998 to 2003 and CEO from 2003 to 2009. CSX has hired numerous midlevel operations managers from CN to help implement precision railroading on the ground.
On a call Friday, Foote indicated he believed Harrison already accomplished much of the heavy lifting in closing and repurposing yards and facilities, as well as in beginning to transform the intermodal strategy away from unit trains and a hub-and-spoke model. We would not be surprised to see Foote bring on board additional operations personnel who intimately understand Harrison's proven operating model.
In our view, Harrison's longtime operations understudy, Keith Creel, now CEO of Canadian Pacific (CP), would have the greatest probability of maintaining Harrison's pace. However, CP believes it has Creel locked in place with legal agreements, and we are unaware of his interest in another turnaround, particularly now that he has the top seat at CP, where much of its transformation is completed.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.
Keith Schoonmaker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.