CSX Corporation (Nasdaq: CSX) stock fell nearly 7 percent Friday after investors were caught off guard by an announcement that CEO Hunter Harrison will be take a medical leave of absence. Harrison was named CEO in March, and investors had high hopes that his turnaround plan would get the company back on the right track.
Harrison’s arrival helped propel CSX stock higher by more than 60 percent this year as he began implementing a plan to improve business efficiencies, cut costs and increase profits. Prior to joining CSX, Harrison has been the driving force behind similar turnarounds at Canadian National Railway (CNI) and Canadian Pacific Railway (CP).
The 73-year-old Harrison had reportedly been showing signs of deteriorating health, including occasionally using an oxygen tank. CSX did not provide details on his condition, saying only that he is experiencing “unexpected complications from a recent illness.”
In a conference call on Friday morning, acting CEO Jim Foote worked to assure investors that the company, and Harrison’s restructuring plan, are in good hands while Harrison is gone. “My thoughts are totally consistent with everything that Hunter and CSX have said to date about what we intend to do,” Foote says. “I see no significant material change from those plans.”
However, investors are clearly skeptical of what Harrison’s departure could mean for the company.
In March when Harrison first took over control of CSX, Deutsche Bank analyst Amit Mehrotra said Harrison’s plan could potentially drive 25 percent compound annual earnings per share growth over the next four years. In addition, Mehrotra said free cash flow could rise by nearly 200 percent by 2020.
At the time, Mehrotra set a price target for CSX at $60, but he said the stock could potentially go even higher in the longer term.
“We could see significant upside to this target under more favorable EPS and EBITDA valuation scenarios, which are demonstrable if new [management] executes to plan,” Mehrotra said, according to Benzinga.
Baird senior research analyst Benjamin Hartford says Friday’s sell-off is an overreaction.
“We would be buyers on this morning’s pullback,” Hartford wrote on Friday, according to Investors.com. “In our view, $48 to $50 offers…
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