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Harrison Officially Aboard CSX

Shareholders overwhelmingly approved the CEO's rich compensation package, despite his undisclosed health condition.

On June 5,

A recent Wall Street Journal article cited concerns about Harrison's use of supplementary oxygen, his 2015 leave of absence from the CP CEO role due to pneumonia and other health issues, and his working from his Florida home rather than from CSX's headquarters. However, he has conducted railroad business from home for many years, and the results during his leadership of CP are indisputable. Harrison used supplementary oxygen during the June 5 general shareholder meeting and indicated the board is aware of his medical condition. CSX board chairman Edward Kelly indicated the board was satisfied that there is no health issue impairing Harrison's performance as CEO.

Our discounted cash flow-derived $52 fair value estimate assumes Harrison will catalyze operating ratio improvement from 69.4% in 2016 (before his arrival) to 60.0% in 2021, at the conclusion of his four-year contract. While we believe the railroad could improve its OR without Harrison in charge, we would expect this to occur at a slower pace. If, for example, CSX were to better its OR to only 64% by 2021, our fair value estimate decreases to $47.50.

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About the Author

Keith Schoonmaker

Sector Director
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Keith Schoonmaker, CFA, is director of industrials equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Before assuming his current role in 2012, he was an equity analyst covering the transportation industry.

Prior to joining Morningstar in 2007, Schoonmaker worked for more than a decade in product development and consulting in the paper industry.

Schoonmaker holds a bachelor’s degree in chemistry from Wheaton College and a master’s degree in business administration from Northwestern University’s Kellogg School of Management. He also holds the Chartered Financial Analyst® designation. In 2011, he ranked first in the industrial transportation industry in The Wall Street Journal’s annual “Best on the Street” analysts survey.

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