CSX Corp’s Stock Likely To Report Weak Q4 Earnings

CSX Corporation (NYSE: CSX) is scheduled to report its Q4 2020 results on Thursday, January 21. We expect CSX to likely post revenue and earnings below the street expectations, due to continued headwinds for coal shipments. That said, the overall rebound in the economy likely aided the freight revenues for its other segments, including Merchandise and Intermodal.

Our forecast indicates that CSX’s valuation is around $85 per share, which is 9% below the current market price of around $93. Our interactive dashboard analysis on CSX Corporation’s Pre-Earnings has additional details.

(1) Revenues expected to be slightly below the consensus estimates

Trefis estimates CSX’s Q4 2020 revenues to be around $2.6 Bil, slightly below the $2.8 Bil consensus estimate. While lockdowns imposed earlier in 2020 amid the spread of Covid-19 impacted the overall freight volume, the gradual opening up of economies and vaccine development has resulted in a pickup in demand. Looking back at Q3 2020, revenues declined 11% to $2.7 Bil, with coal freight revenue down 36%, a trend expected to continue in the near term given lower demand for power, and coal, in turn, as a source of energy. Our dashboard on CSX Corporation’s Revenues offers more details on the company’s segments.

2) EPS also likely to be below the consensus estimates

CSX’s Q4 2020 earnings per share (EPS) is expected to be $0.89 per Trefis analysis, 11% below the consensus estimate of $1.00. CSX’s net income of $736 million in fiscal Q3 2020 reflected a 14% drop from its $856 million figure in the prior-year quarter. This can be attributed to lower revenues and higher operating costs owing to the pandemic. That said, the margins will likely improve going forward, driven by the company’s focus to reduce its operating ratio. Despite the increased costs due to the pandemic, CSX’s operating ratio fares favorably at 57% compared to levels of 67% seen in 2017. For the full-year 2020, we expect the EPS to be $3.50 compared to $4.17 in 2019.

(3) Stock price estimate slightly lower than the current market price

Going by our CSX’s Valuation, with an EPS estimate of around $3.50 and a P/E multiple of around 24.4x in 2020, this translates into a price of $85, which is 9% below the current market price of around $93.

Although the continued challenges in the coal freight business will have a notable impact on CSX’s overall revenue growth rate in 2020, we believe the demand for the Merchandise and Intermodal segments will see sequential growth, driven by the resumption of economic activities and increased demand for transportation.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year

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