Is There Any Room For CSX Corporation’s Stock Price Growth?
CSX Corporation’s (NASDAQ: CSX) stock price has roughly 10% room for growth, in our view. The company’s fair price estimate based on expected 2020 earnings is $77, according to Trefis estimates. This compares with the current market price of around $70. CSX’s stock price has grown over 12% year-to-date, primarily driven by the company’s focus on reducing its operating ratio. This has boosted the company’s bottom line despite 2019 being a tough year for the top line growth, amid export woes and increased trucking capacity. For perspective, CSX has managed to bring down its operating ratio from 69% in 2016 to under 60% in 2019.
CSX is the leading railroad company in the Eastern U.S., engaged primarily in freight transportation in the Southeast, East, and Midwest regions of the U.S. Other railroad companies in the U.S. include Union Pacific and Norfolk Southern. In this note we discuss our stock price valuation for CSX. You can look at our interactive dashboard analysis ~ CSX Corporation Valuation: Expensive Or Cheap? ~ for more details.
We Can Break Down CSX Corporation’s Stock Price Estimate Into 4 Factors: 1. Total Revenue, 2. Net Income Margin, 3. No. of Shares, And 4. P/E Multiple.
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#1. Estimating CSX’s Total Revenues:
- Total Revenues have increased from $11.0 billion in 2016 to $12.3 billion in 2018, and it could grow to north of $13.0 Billion by 2020.
- Our Interactive Dashboard Analysis, CSX Corporation Revenues: How Does CSX Corporation Make Money?, Provides An In Depth View Of The Company’s Revenues.
Comparing trends in CSX’s Total Revenues with that of its peers
- Note that 2019 sales for all three railroad companies are being impacted by lower exports, amid trade tensions, lower natural gas prices resulting in lower coal demand and shipments, and increased competition from the trucking industry.
#2. Deriving CSX’s Net Income:
- Net Income grew from $1.7 billion in fiscal 2016 to $3.3 Billion in 2018, and we expect it to be around $3.4 billion in 2020.
- Our Interactive Dashboard Analysis, CSX Corporation Expenses: How Does CSX Corporation Spend Its Money?, Provides More Details On The Company’s Expenses.
- EPS has grown from $1.81 in 2016 to $3.84 in 2018, and we estimate it to be $4.25 in 2020.
- EPS growth can be attributed to higher Net Income and Revenues, and lower Shares Outstanding.
#4. Estimating CSX’s Share Price:
- Our Price Estimate of $77 For CSX’s stock is based on our Detailed Valuation Model, and implies an 18x P/E Multiple on expected 2020 EPS of $4.25.
Comparing CSX’s P/E Multiple Over The Last Three Years With That of Its Peers
- P/E Multiples are based on Share Price at the end of September of each year, and reported (or expected) Earnings for the full year.
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