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Jax Daily Record Tuesday, Oct. 13, 201512:00 PM EST

Analysts will be watching CSX earnings report

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by: Mark Basch Contributing Writer

Another quarterly earnings season kicks off this week with CSX Corp., and analysts will be paying close attention to the Jacksonville-based railroad company for a couple of reasons.

One is that CSX will be the first major railroad to report its numbers. The industry in general has been reporting disappointing numbers recently, sending rail stocks down 30 percent since a November peak, according to a Goldman Sachs report.

The other reason is CSX will also be one of the first Standard & Poor’s 500 companies to report earnings and analysts have been warning the nation’s big companies are in an “earnings recession,” even as the economy grows.

Earnings for S&P 500 companies declined in the second quarter and are expected to show an overall decline again in the third quarter.

CSX has been projecting earnings to be flat in the quarter, although a slight decline wouldn’t be a surprise.

Despite all the doom and gloom, the Goldman Sachs analysts painted an optimistic picture for the railroad industry. They upgraded the overall industry from “neutral” to “attractive” after the drop in stock prices over the past year.

“In our view, near-term earnings risks are now well-known and discounted. However, current valuations do not seem to fairly reflect the long-term earnings power of the Rails, in our view,” they said.

The Goldman Sachs analysts are expecting a rebound in the number of carloads of freight transported on the railroads in 2016, which will help the stocks.

“Rail stocks have underperformed Transports and the S&P on negative EPS revisions stemming from weaker-than-expected volumes, particularly coal and crude. While the outlook for demand remains uncertain, rarely do carloads decline two consecutive years,” they said.

However, another report on the transportation industry last week by Barclays Capital analysts was more cautious.

“It is easy to understand the desire to acquire quality companies at a discount, but we think it is still too early to get bullish on transports,” the Barclays analysts said.

“We understand that railroad volume comps will get ‘easy’ in early 2016, as we lap softer market activity. However, with energy capital spending expected down over 20 percent in 2016 and a strong U.S. dollar weakening competitiveness for industrial production, we are concerned the recent decline in rail traffic points to a lower run-rate of activity looking forward,” they said.

Barclays rates CSX’s stock at “equal weight,” but said “low relative valuation, accelerating efficiency gains and continued pricing traction make CSX a compelling long-term holding.”

Goldman Sachs has essentially the same rating on CSX at “neutral,” despite its upgrade for the entire industry, because it sees better “upside” with other rail industry stocks than with CSX.

“Coal continues to be a headwind as exports remain challenged and inventory de-stocking will likely pressure domestic coal volumes. While coal concerns are not new to investors, it remains a source of uncertainty which tempers our bullishness for the stock,” the Goldman Sachs analysts said.

On the bright side, Merrill Lynch two weeks ago added CSX to its “US 1” list of its top-rated stocks, according to several news reports. Merrill Lynch generally does not supply its analyst reports to the media.

Top Jacksonville Bancorp shareholder supports buyout

In case there was any question of getting shareholder approval for its proposed buyout by Ameris Bancorp, Jacksonville Bancorp Inc.’s largest stockholder has pledged its support for the deal.

CapGen Capital Group IV, which controls 41.5 percent of Jacksonville Bancorp’s voting stock, said in a Securities and Exchange Commission filing it has already agreed to vote its shares in favor of the deal.

Ameris announced its $96.6 million agreement to buy the parent company of The Jacksonville Bank on Oct. 1. Ameris, which is moving its top executives from Georgia to the Riverplace Tower on the Southbank, is acquiring Jacksonville Bancorp to expand its branch network in the Northeast Florida market.

FIG Partners analyst Christopher Marinac said in a research report that as Ameris expands in Jacksonville, “over time we feel the stock could gain notoriety as a Florida-based franchise instead of South Georgia.”

Marinac has an “outperform” rating on Ameris’ stock. He expects the acquisition to be a positive for the company’s earnings, projecting Jacksonville Bancorp will add at least 6 cents a share to Ameris’ 2017 earnings, which he estimates at $2.70 a share.

Drone Aviation shakes up management

Drone Aviation Holding Corp. revealed a management shakeup in an SEC filing last week.

The company said Felicia Hess has resigned as president and CEO and became chief operating officer. Her husband Kevin, who had been director of engineering, is now CEO.

Daniyel Erdberg, who had been chief operating officer, is now president, the SEC filing said.

The filing came the same day that Drone Aviation issued a news release with a letter from Chairman Jay Nussbaum to update shareholders on recent actions at the company, but the letter did not include the top-level executive changes.

Nussbaum’s letter did include details of a plan to effect a reverse stock split, to increase the trading price of Drone Aviation’s stock and seek a listing on a national exchange such as Nasdaq.

The stock has been trading in the OTC market at a price of less than 20 cents for the last two months.

According to the SEC filing, the reverse split would be a done at a ratio between 1 for 15 (stockholders getting one share for every 15 they currently own) and 1 for 50.

Jacksonville-based Drone Aviation develops specialized lighter-than-air aerostats and tethered drones.

Another ParkerVision appeal denied

ParkerVision Inc. last week announced the Court of Appeals for the Federal Circuit denied its petition for a rehearing of its appeal in the company’s patent infringement lawsuit against Qualcomm Inc.

That announcement was no surprise after the appellate court ruled against ParkerVision in July. “Although rehearing petitions are not frequently granted, we were hopeful that the technical misunderstandings in this case would provide sufficient basis for the panel to revisit its decision,” CEO Jeff Parker said in a news release.

ParkerVision was originally awarded a $173 million judgment by a federal court jury in 2013, but the judge in the case overturned the verdict last year. ParkerVision has been appealing the judge’s ruling.

ParkerVision alleges Qualcomm is illegally using wireless technology in its products that was developed and patented by ParkerVision.

Parker said the company is evaluating what steps are still available to take in the case. ParkerVision has a second lawsuit pending against Qualcomm and two other companies, alleging infringements of a different set of patents.

Stein Mart September sales drop

As the company had projected the previous week, Stein Mart Inc. last week reported lower sales for September.

The Jacksonville-based fashion retailer said total sales for the five weeks ended Oct. 3 fell 1.8 percent to $117.3 million and comparable-store sales (sales at stores open for more than one year) dropped 2.8 percent.

Stein Mart said sales were impacted by unseasonably warm weather, one less week of post-Labor Day fall fashion selling and a shift in some promotional events.

General Employment makes another deal

General Employment Enterprises Inc. last week announced its second acquisition since Jacksonville executive Derek Dewan took over as CEO of the Illinois-based staffing company.

General Employment bought a Colorado information technology staffing and consulting company called Access Data Consulting Corp.

Dewan said in a news release the deal allows General Employment to expand into the Mountain-West market.

“We are growing our company’s geographic footprint to better serve our national clients in more key markets with a broader and deeper breadth of IT service offerings,” he said.

The acquisition will also expand its revenue base. General Employment reported revenue of $31 million in the nine months ended June 30, and Access Data had revenue of about $21 million in fiscal 2014.

General Employment also said the deal is expected to be accretive to its earnings per share.

General Employment said in an SEC filing it is paying $13 million to acquire Access Data, subject to certain adjustments.

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