Despite a 16% fall year-to-date, we believe CSX stock (NYSE: CSX) has little room for growth. CSX stock fell from around $37 in early January to under $32 now. The YTD 16% fall for CSX aligns with the -17% returns for the broader S&P500 index and its peers, Union Pacific stock and Norfolk Southern stock, both down 17%. Looking at the longer term, CSX stock is up 53% from levels seen in late 2018, compared to around 60% returns for the S&P500 index.
This 53% rise for CSX stock since late 2018 was driven by: 1. CSX revenue, which grew 19% to $14.6 billion over the last twelve months, compared to $12.3 billion in 2018, 2. a 14% fall in its total shares outstanding to 2.1 billion, driven by share repurchases of around $8 billion between 2019 and now, and 3. the company’s P/S ratio, which rose 11% to 4.7x trailing revenues, from 4.2x in 2018. Our interactive dashboard, Why CSX Stock Moved, has more details.
CSX’s revenue growth between 2018 and 2021 can be attributed to a nearly 2x rise in its Trucking & Other segment sales to $1.2 billion in 2021. CSX acquired Quality Carriers – a trucking company focused on bulk liquid chemicals transportation – last year, bolstering revenue growth in recent quarters.
The company’s freight business saw a 1% rise in average revenue per carload, which was more than offset by a 3.5% decline in the volume of carloads over this period. This has meant that the company’s revenue from Coal, Intermodal, and Merchandise freight fell 2.6% to $11.4 billion in 2021 from $11.7 billion in 2018. However, 2022 has been good so far, and we forecast a significant 15% jump in revenue from these three segments, purely driven by higher average revenue per carload, while the volume of carloads will likely remain flat y-o-y.
Furthermore, the company has been consistently improving its operating ratio, which fell to 55.3% in 2021 compared to 60.3% in 2018. However, given the higher inflation, costs have been higher this year, and the operating ratio has risen by over 500 bps y-o-y to 59.0% for the nine month period ending September 2022. The company’s bottom line rose 35% to $1.68 in 2021, compared to $1.24 in 2018, and we expect it to rise to $1.92 in 2022. This is much better than the company’s revenue growth of just 2% over this period, primarily due to better operating margins and share buybacks.
Looking forward, there are near-term headwinds for the company. The demand for railroad business can primarily be linked to economic growth. The current high inflationary environment, rising interest rates, and recession fears have weighed on railroad stocks.
Looking at valuation, we find CSX stock has little room for growth. We estimate CSX’s valuation to be $34 per share, reflecting less than a 10% upside from its current market price of $32, implying that investors are likely to be better off waiting for a dip to enter CSX stock for more gains in the long-term. At its current levels, CSX stock is trading at 17x forward earnings estimate of $1.92 per share, compared to the last four-year average of 18x.
While CSX stock looks like it is appropriately priced, it is helpful to see how CSX’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for CSX vs. Amerco.
With inflation rising and the Fed raising interest rates, among other factors, CSX stock has fallen 16% this year. Can it drop more? See how low CSX stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||2%||-17%||77%|
|Trefis Multi-Strategy Portfolio||2%||-20%||215%|
 Month-to-date and year-to-date as of 11/29/2022
 Cumulative total returns since the end of 2016