No surprise: CSX leads pack for double-digit gains

The first half of the year was good for stocks, with a number of Jacksonville-based companies producing double-digit gains.


  • By Mark Basch
  • | 8:30 a.m. July 10, 2017
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But it was Jacksonville’s biggest company that produced the biggest gain.

As everyone knows by now, CSX Corp. soared on the news that Hunter Harrison was seeking the CEO job in January, and he eventually got the job in March.

Investors expect a big improvement in the railroad’s operations from Harrison, who left as CEO of Canadian Pacific Railway Ltd. to pursue the CSX job.

So, it’s no surprise that CSX led all Jacksonville stocks in the first six months of the year, with its price jumping 51.9 percent.

CSX next week will report earnings for the second quarter, its first full quarter since Harrison took over. According to one analyst, the report should show a lot of activity already.

“Since Hunter was named CEO in late 1Q, CSX has already shut down 6 of its 12 hump yards and reported meaningful improvements in train speeds, train counts, and on-time performance,” Wolfe Research analyst Scott Group said in a research note before the holiday weekend.

“Train speeds have increased about 10 percent, on-time arrivals have increased about 36 percent, and active train counts have come down about 20 percent,” he said.

Group, like everyone else, has high expectations. He has a year-end price target of $60 for the stock, which would mean an additional 10 percent gain in the second half of the year.

“CSX remains our favorite rail stock idea based on our expectation it will see high-end margin improvement and EPS growth over the next few years under Hunter Harrison,” he said.

Analyst expects more Fidelity gains

Another analyst says he thinks the second-best performer among Jacksonville companies, Fidelity National Financial Inc., also could be in for more gains after rising 32 percent in the first half of the year.

Barclays Capital analyst Mark DeVries met with Fidelity’s management before the holiday weekend and said the company’s title insurance trends remain strong, and the spinoffs of its investment subsidiary and its majority stake in Black Knight Financial Services Inc. is on track.

“We continue to view FNF as one of the more defensive names in our group that could deliver attractive total returns if this business cycle extends, and significantly outperform if it doesn’t,” DeVries said in his report after the meeting.

“Despite the pronounced outperformance year-to-date, we believe the shares still offer attractive upside with catalysts, so we reiterate our ‘overweight’ rating,” he said.

DeVries said the planned spinoff of the company’s investment subsidiary, Fidelity National Financial Ventures, likely will happen before Black Knight.

FNFV has investments in several restaurant chains and other businesses not related to Fidelity’s title insurance operations. The company will rename the subsidiary Cannae Holdings Inc. once it becomes a separate public company, with its headquarters located in Las Vegas.

DeVries said the spinoff of Jacksonville-based mortgage technology company Black Knight will likely happen near the end of September. Fidelity currently controls a majority of Black Knight’s stock, but will distribute those shares to Fidelity stockholders.

While Fidelity sheds its investments in those companies, it continues to seek acquisition opportunities in its title business, DeVries said. Those acquisitions aren’t making a big splash, but they add up, he said.

“FNF has been focused on acquiring smaller regional title agencies over the last year,” he said.

“Because none of the deals are considered material, disclosures around the acquired businesses are limited, but we estimate they create a 1-2 percent annual tailwind to title order counts and premiums that is not in street numbers.”

DeVries set a price target of $49 for Fidelity’s stock, which was trading at $44.64 when he issued the report.

10 Jacksonville stocks outperform

The Dow Jones industrial average (up 8 percent) and the Standard & Poor’s 500 index (up 8.2 percent) both did well in the first half of this year, but 10 Jacksonville companies beat the national indexes.

That includes the two pending spinoffs by Fidelity. FNFV rose 15.3 percent and Black Knight rose 8.3 percent.

Another company spun off from Fidelity in 2006, bank technology company Fidelity National Information Services Inc., rose 12.9 percent.

The outperformers included the three remaining banks headquartered (more or less) in Jacksonville. 

FirstAtlantic Financial Holdings rose 18.3 percent and Atlantic Coast Financial Corp. rose 15.3 percent.

Ameris Bancorp, which actually is headquartered in Georgia but maintains its executive offices in Jacksonville, rose 10.6 percent.

EverBank Financial Corp., which was acquired by TIAA last month, was flat while it was still trading, because the $19.50 acquisition price was already locked in last year.

Another Jacksonville-based company that outperformed the national indexes was Web.com Group Inc., up 19.6 percent.

The website services company’s stock was helped by a generally strong environment for technology stocks. While the broad market rose, as reflected in the Dow industrials and S&P 500, the tech-heavy Nasdaq composite index did even better, rising 14.1 percent in the first half of the years.

But the biggest boost for Web.com came from a Reuters news service report in March that it was talking to private equity firms about a possible buyout. 

There has been no update on that in the last three months.

One Jacksonville company that seems to be defying the national trend is commercial real estate developer FRP Holdings Inc.

FRP is considering a conversion to a real estate investment trust and REIT stocks have underperformed, with the S&P U.S. REIT index showing a slight decline for the year. However, FRP rose 22.4 percent in the first half of this year.

Stein Mart Inc., Drone Aviation drop

At the other end of the scale, the big loser was Stein Mart Inc., which fell 69.2 percent as sales dropped.

The fashion retailer is working on plans to rebound sales trends but has said it will take time, so the stock remains depressed.

The other big drop has a more interesting story.

Drone Aviation Holding Corp. looked like a stock to watch at the end of 2016 because its vice chairman, Michael Flynn, resigned from the company to take the high-profile job of national security adviser for President Trump.

Flynn was forced to resign from that position early in the new administration because of questions about his communications with Russia. 

Of course, questions about Flynn have continued through the spring and into summer.

Drone Aviation has never been included in any reports about government investigations and there has been no suggestion that the company did anything wrong, but any association with Flynn has to be a negative for the stock.

In the absence of any other significant news from the company, Drone Aviation had the second biggest drop among Jacksonville companies, falling 50 percent in the first six months of this year.

International Speedway attendance down

International Speedway Corp. last week reported increases in attendance and admissions revenue from its Coke Zero 400 race over the holiday weekend at the Daytona International Speedway, but the company still is struggling to draw fans to other NASCAR events.

The Daytona Beach-based company operates 13 motorsports facilities that are tied heavily to NASCAR events.

International Speedway said revenue for the second quarter ended May 31 (which doesn’t include the Coke Zero 400) was $165.3 million, slightly below the $167.6 million in revenue for the second quarter of fiscal 2016.

Adjusted earnings of 30 cents a share were a penny higher than last year’s second quarter.

During the company’s conference call with analysts last Monday, President John Saunders said attendance at its top-level NASCAR events was down 6.5 percent in the quarter.

Although last weekend’s event had higher attendance, advance sales for International Speedway’s remaining events in the fiscal year are down about 5 percent, Saunders said.

“We remain confident our consumer-focused marketing strategies are working to slow recent attendance-related revenue trends,” he said.

“Our initiatives will continue to target new and lapsed customers through all traditional media, social and digital channels.

“The objective here is to reignite and protect the base, grow casuals into avids, and spark interest in demand with the next generation of fans,” he said.

Saunders said International Speedway is promoting family-friendly ticket packages to entice younger fans.

“We’re pleased with the year-over-year to-date increases in younger demographics attending events,” he said.

The company also continues work on construction of its One Daytona project, a massive mixed-use entertainment and retail complex on property across the street from the Daytona Beach track.

The official grand opening of the 300,000-square-foot complex is scheduled for the fourth quarter this year.

 

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