CSX’s Top Line To Decline In Q2?

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CSX Stock (NYSE: CSX) will report its Q2 2023 results on Thursday, July 20. We expect the company’s revenues to come in at $3.7 billion, aligning with the consensus estimate. This would mark a year-over-year decline of about 3%. Earnings will likely come in at about $0.49 per share, in line with the consensus estimate. See our interactive dashboard analysis on  CSX Earnings Preview for more details on how the company’s revenues and earnings will likely trend for the quarter. So, what are some of the trends that are likely to drive CSX results?

CSX should benefit from robust coal and merchandise freight demand. However, with fuel prices cooling off, it will likely weigh on overall fuel surcharges and average revenue per carload. The total volume of carloads is also expected to see a marginal decline compared to the prior-year quarter. Looking at Q1’23, CSX’s revenues of $3.7 billion reflected a 9% y-o-y growth, led by a 9% rise in average revenue per unit, while its total volume of carloads was down 1%.

The fuel surcharge revenue for the company stood at $361 million in Q1, and it should be lower in Q2 vs. its prior-year figure of $395 million. The WTI price per gallon fell from $105 (end of June last year) to $75 now. CSX’s net income of $987 million in Q1’23 reflected a 15% rise from its $859 million figure in the prior-year quarter, led by sales growth and nearly a 300 bps rise in operating margin to 39.5%. Our CSX Operating Income Comparison dashboard has more details. Looking at the bottom line, CSX reported earnings of $0.48 per share in Q1’23, compared to $0.39 per share in the prior-year quarter.

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Not only do we expect CSX to post an in-line Q2’23, with a slight decline in sales and earnings, we believe its stock is fully valued. We estimate CSX’s’ valuation to be $33 per share, marginally below its current price of $34. Our forecast is based on a 17x P/E multiple for CSX and expected earnings of $1.94 on a per-share and adjusted basis for the full-year 2023. The 17x P/E multiple aligns with the stock’s last three-year average, implying that the stock is fully valued. In fact, fears of a potential recession and its impact on the railroad business could weigh on CSX stock in the near term. That said, if the company were to report a Q2 beat and upward revision in guidance, it would likely see its stock rise post the results announcement.

While CSX stock looks 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.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

 Returns Jul 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CSX Return -1% 9% 182%
 S&P 500 Return 0% 16% 98%
 Trefis Multi-Strategy Portfolio 3% 22% 291%

[1] Month-to-date and year-to-date as of 7/12/2023
[2] Cumulative total returns since the end of 2016

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