NEW YORK (TheStreet) -- The more than 50% drop in oil prices over the last six months could impact CSX (CSX - Get Report) , the biggest railroad company in the eastern U.S., which uses rail cars to transport crude. But that oil price drop is hardly a serious threat, thanks to the diversity of CSX's operations.

Indeed, the country's broader economic growth and the accelerating recovery of the housing sector -- which makes a bigger contribution to the company's revenues than the crude-by-rail business -- could fuel its earnings growth.

Following the slump in oil prices, exploration and production companies representing 30% of U.S. oil production have reduced their 2015 capital budgets by 24%, according to a February report from Goldman Sachs's energy analysts. Some of the leading oil producers, such as Apache  (APA - Get Report) , Oasis Petroleum (OAS - Get Report) , Continental Resources (CLR - Get Report)  and Occidental Petroleum (OXY - Get Report) , have reduced their 2015 capital budgets by 26% to 44%.

Eventually, the Goldman Sachs team led by Brian Singer estimates that land spending from oil producers in North America will drop by 30% in 2015. Consequently, U.S. oil production growth will peak in the first quarter of this year, then slow in subsequent quarters, Goldman predicted. This, however, won't be a major concern for CSX, even if the company witnesses a drop in crude-by-rail shipments. That's because crude-by-rail represents just 2% of the company's overall business.

CSX also ships fracking sand, which is used by oil and gas producers in their shale drilling operations. But this business has limited exposure to crude prices, as the shipments are largely related to the Utica Shale and Marcellus Shale regions in New York, Pennsylvania, Ohio and West Virginia, which mainly produce natural gas and natural gas liquids.

Regardless of the threats to its crude-by-rail business, CSX will benefit from the strength in the U.S. housing sector, which could deliver better performance this year due to declining unemployment, expected growth in real wages, modest growth in home prices and a relaxation of mortgage application requirements.

In an email, CSX spokeswoman Melanie Cost said that housing starts could grow from 1 million units in 2014 to about 1.2 million units this year. This "contributes to a favorable outlook across our construction markets, forest products, minerals, and waste and equipment." That could completely offset the possibility of a negative impact from the crude-by-rail business, given "housing-related markets touch about 6%" of CSX's business.

Additionally, CSX expects improvements in freight pricing from last year, thanks to higher cargo demand due to U.S. economic growth. The slide in crude oil prices, and the parallel decline in gas prices, have also boosted consumers' purchasing power, which could lead to higher consumer spending, bolstering a key pillar of the economy. The latest consumer spending data for December showed a decline as consumers took advantage of early promotions and did most of their holiday shopping in October and November. However, for 2014, consumer spending increased by 2.6% after adjusting for inflation -- the strongest gain since 2006.

At this point, trucking companies do not have the capacity to satisfy strong demand due to a lack of drivers. That's great for CSX. A scarcity of transportation options should allow CSX to capture higher prices when it renegotiates 20% of its contracts in the first quarter. Consequently, pricing is expected to improve sequentially in each quarter throughout 2015, the company predicted last month.

Due in part to those price increases, CSX expects to achieve double-digit earnings per share growth in the current fiscal year, compared to 4.9% growth in the previous year.

 


TheStreet Ratings team rates CSX CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:


"We rate CSX CORP (CSX) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, revenue growth, good cash flow from operations and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

You can view the full analysis from the report here: CSX Ratings Report

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.