What’s Behind The 120% Surge In CSX’s Stock Price In The Last 3 Years?

by Trefis Team
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CSX Corporation (NASDAQ: CSX) saw its stock price rise by a whopping 120% over the last 3 years, from $36 in December 2016 to about $80 currently. This rise was primarily driven by net income margin growing 80% over this period, driven by a steady drop in cost of revenue. Additionally, the company’s top line has also expanded due to healthy growth in merchandise freight. We break down the movement in CSX’s stock price into four factors: growth in revenue, change in share count, expansion in P/E multiple, and change in net income margin. You can look at our interactive dashboard analysis on CSX’s stock price growth for more details. 

#1. CSX’s Total Revenue has grown 7.8% from $11.1 billion in 2016 to almost $12 billion in 2019, and it is expected to decline slightly to around $11.9 billion in 2020.

  • Revenue decline of about $29 million in 2020 to be driven by about $53 million growth from Intermodal, $119 million from Merchandise & Other, offset by $202 million decline from coal.
  • Coal revenue has declined over the recent years to $2.1 billion in 2019, and it is estimated to decline to $1.9 billion in 2020.
  • Coal has been on a decline over the recent quarters, due to favorable natural gas prices, resulting in lower demand for coal as a source of energy. As such, the shipments and pricing for railroad companies have been impacted, and this trend is expected to continue in the near term.
  • Merchandise revenue has been on a rise, and we expect this trend to continue in 2020, led by growth in the overall U.S. economy, and industrial production.
  • Intermodal revenue was impacted by lane rationalization in 2019, but that phase is passed, and the company should see steady growth going forward.
  • Look at our interactive dashboard CSX Revenues for more details in the company’s revenue and performance.

#2. Net Income Growth

  • Net Income increased from $1.7 billion in 2016 to $3.3 billion in 2019. This can be attributed to higher revenues and elevated margins.
  • A sharp rise in 2017 was driven by one-time tax benefits due to the TCJ Act. We expect net income to rise to $3.4 billion in 2020.
  • Net income margin increased from 15.5% in 2016 to 48.0% in 2017. This was followed by a drop to 27.0% in 2018 and rise to 27.9% in 2019.
  • Total Expenses as % of revenue have largely decreased, with the fall being sharp in 2018 due to lower taxes.
  • Notable changes can be seen in effective tax rate and steady reduction in cost of revenue as % of revenue, along with lower interest expense (reflected in Other Costs), which has led to a rise in profitability.

#2.1 EPS Growth

  • EPS has risen steadily over the years from $1.81 in 2016 to $4.17 in 2019
  • The EPS spiked to $5.99 in 2017 due to the impact the TCJ Act as highlighted above. We expect the EPS figure to further increase to $4.30 in 2020.
  • Shares outstanding have declined from 948 million in 2016 to 798 million in 2019, due to the company’s approved share buyback plans.

#3. P/E Multiple Expansion

  • Price-To-Earnings (P/E) multiple for CSX has been volatile over the years, but is lower than what it was in 2016.
  • CSX’s P/E multiple contracted from 20x by the end of 2016 to 17x by the end of 2019.
  • This compares with Norfolk Southern, which saw its P/E drop slightly from 19.6x to 19.3x, while Union Pacific’s P/E grew from 19.7x to 21.3x over this period.
  • The current P/E is also lower than that for its peers Norfolk Southern and Union Pacific.

See all Trefis Price Estimates and Download Trefis Data here

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