Shares of rail and intermodal carrier CSX Corp. (NASDAQ: CSX – $52.62) are tumbling about 8% in today’s trading after the company announced that legendary CEO E. Hunter Harrison was on medical leave due to unexpected complications from a recent illness. Consequently, the board of directors has named COO James M. Foote as acting CEO. Details about Harrison’s condition are scarce, so there is no timetable for his return. With the implementation of Precision Scheduled Railroading, the operating plan that he introduced with success at both Canadian Pacific and Canadian National Railway, CSX expects to not only do more with less but improve network refinement and service quality. With a larger-than-life figure at the helm, it is not surprising that investors were skittish on news of his medical leave. However, many pieces of Precision Scheduled Railroading have already been put into place. And in response to a question on this morning’s conference call about the company’s intermodal network, Foote said that “the big changes are done” and the company’s pivot from a hub-and-spoke system to a more traditional operating model is in the works.
Not uncommon, traders seem to be overreacting on the sell side, although the news about the renowned railroader is not an encouraging sign. CSX stock has been trading at record highs since Harrison joined the company earlier this year and his presence at the helm was not coincidental with the rise in the stock price and, despite today’s retreat, the shares are up 57% over the past twelve months. In all, I believe that the fundamentals for the nation’s third largest railroad are still in place and in good hands with Foote. Hence, I am continuing to hold the shares of CSX in the aggressive portfolio for the long-term.