CSX Corp. (CSX)  shares recovered slightly Monday morning after a steep drop following the sudden death of the railroad's chief executive, veteran Hunter Harrison.

Even so, serious questions remain over the fate of the freight company's multi-billion-dollar turnaround strategy without Harrison at the helm.

Harrison was installed as CEO of the railroad giant in March as part of a settlement with activist investor Paul Hilal and his newbie fund, Mantle Ridge. As part of the deal, not only did Harrison get a four-year contract in the chief executive position, and a pay plan approved by 93% of voting shareholders, but Hilal and other activist-approved nominees were installed on CSX's board.

Also, Mantle Ridge moved to require its limited partners to commit $1.2 billion over five years so it could accumulate a 4.9% CSX stake. It appears that the commitment is in full effect even without Harrison. 

The railroad veteran's passing also raises questions about the wisdom behind Mantle Ridge's effort and CSX's move to hire a medically unfit Harrison, who reportedly had an undisclosed medical condition that required that he work from home several days a week. 

Nevertheless, the analyst community contends generally that even with Harrison gone, CSX will continue to implement a turnaround plan he began ten months ago, which included an operating approach he pioneered known as precision scheduled railroading. The strategy allows the railroad company to schedule shipments in a precise way by knowing how trains move between customers and interchanges.

CSX recently installed chief operating officer, Jim Foote was tapped as acting CEO, a move that some analysts suggest will provide some stability and continuity for Harrison's goals.

"If I had to form a view, I'd say he [Foote] probably stays in the role," Atlantic Equities LLP analyst Lindsay Bettiol said in an interview with TheStreet. "The reason would be, at CSX you need a CEO who understands precision railroading."

Hunter Harrison, former CSX CEO.
Hunter Harrison, former CSX CEO.

Cherilyn Radbourne, an analyst at TD Securities, suggests in a note that she believes Foote provides an important source of continuity. However, her biggest concern with Foote is that his primary area of expertise is sales and marketing vs. operations and that the senior management team now lacks a member with an operating background.

As a result, it is possible that CSX will start to look around to bring in a new CEO and it is possible that a new chief executive could be brought it through a large merger. Activist-pressured companies often seek to sell themselves or engage in some big mergers when they have no full-time CEO. CSX could face that kind of pressure from Mantle Ridge with Hilal on the board and Harrison gone. Nevertheless, Hilal and Mantle Ridge would need to feel that CSX was fully valued before pushing for a big merger. With many analysts suggesting that CSX's target price is still in the low $60s, it is likely that Hilal isn't ready yet to push for a big combination. 

Jeffrey Kauffman, an analyst at Aegis Capital Corp and a 27-year-veteran of covering the rail sector, suggested that at some point there could be a push at CSX to make a consolidation play, with a move to expand the precision railroading approach to a broader set of railroads. One possibility would be an effort to combine CSX with Canadian Pacific (CP) , where Harrison had previously orchestrated a turnaround driving CP's Toronto-based shares to climb 190% during his tenure. Alternatively, Kaufman suggested that CSX could seek to combine with either the Burlington Northern or Union Pacific Corp. (UNP) railroads, to create an east-west transcontinental railroad.

If a deal can be done, the most likely acquisition candidate that would overcome regulatory objections would be Kansas City Southern (KSU) , a railroad whose stock that has recovered in recent months after initially being battered upon the Trump election. Shares came under pressure on fears around its Mexico operations in the wake of speculation on the new administration's plan to renegotiate the North American Free Trade Agreement.

CSX's shares dropped precipitously on Friday, from about $57 a share to $51.10 a share, on the initial news of Harrison taking medical leave. The company's shares have since recovered a bit to trade at $53.19 Monday. CSX shares are still trading well above the price they shot up to in January after the first report suggesting that Harrison and Hilal were teaming up to shake up CSX. The railroad's shares spiked up from $36.88 a share to $45.51 on Jan 18 upon the news that a campaign was brewing. As a result, it is likely that Mantle Ridge's investment is profitable so far. Nevertheless, without Harrison at the helm at CSX, it is unclear what Hilal's next move will be.

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