Stifel affirms CSX Corp. (NYSE: CSX) at Buy with a price target of $28 following Q2 results issued Wednesday night.

Analyst John G. Larkin offered the following commentary and highlights:

• Same store sales (+2.9%) continue to diverge from RPU (-2.7%). It’s clear that RPU is down thanks to lower fuel and negative mix, but what is not as apparent is what portion of business same store sales contributes to. We expect this trend to continue across nearly all rails so long as coal and other commodities remain so depressed.
• Rising fuel prices created a negative fuel surcharge headwind of just over a half penny. Recall that CSX pegs their FSCs (fuel surcharges) to on-highway diesel prices with a two month lag. This is the same structure as for GWR, KSU, UNP. NSC should not see as much of a headwind as most surcharges are tied to WTI, which has oscillated as opposed to shooting up like diesel. CNI should see less of a headwind, as roughly two-thirds of contracts are tied to diesel, and one-third WTI. CP should see only a negligible headwind as well, as most of its contracts are tied to diesel, but on only a two week lag.
• Intermodal volumes (as are reported by the AAR) came in soft. Completion of double stacking capable routes through Washington DC (soon) and Baltimore (still in planning stage) to complete

• Management commentary indicated a tough 2H16. CSX continues to expect 2016 full-year earnings per share to decline. Reasons cited were transitioning energy industry markets, a strong U.S. dollar, and low commodity prices. Management reiterated their long term mid-60s OR target. We believe CSX’s management has realistic expectations informing their financial planning capital deployment functions, which will aid them in outperforming the group longer term. We do not have confidence that is the case across all of the rails.

• Volumes came in down 9.3% y/y with a negative mix shift from commodities to intermodal. Only 3 categories showed positive y/y comps—automotive (up 0.8%), emerging markets (up 8.0%), and domestic intermodal (up 5.0%). Coal and chemicals declined the most at 33.9% and 12.7%, respectively. The deceleration in automotive growth stimulates some cause for concern, and comes on the backs of many automobile manufacturers struggling to maintain quality of sales. While these volume figures are reported each week by the AAR and should not be a surprise, they remain a common focus of discussion.

For an analyst ratings summary and ratings history on CSX click here. For more ratings news on CSX click here.