VALUATION HIGHLIGHTS
- Merchandise Freight constitutes 64% of the Trefis price estimate for CSX Corporation's stock.
- Intermodal Freight constitutes 16% of the Trefis price estimate for CSX Corporation's stock.
- Coal Freight constitutes 12% of the Trefis price estimate for CSX Corporation's stock.
WHAT HAS CHANGED?
- CSX Stock vs. S&P 500 Performance
The performance of CSX stock with respect to the index has been lackluster. Returns for the stock were 26% in 2021, -17% in 2022, 14% in 2023, and -6% in 2024. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 - indicating that CSX underperformed the S&P in 2021, 2023 and 2024.
- Q1 2025 Performance
The company's top line of $3.4 billion reflected a 7% y-o-y decline, due to a 1% decline in volume and a 6% fall in average revenue per carload. The company continued to face headwinds from a decline in coal shipment pricing, down 20% in Q1. Lower fuel prices have resulted in lower fuel surcharge revenues. Looking at the bottom line, EPS stood at $0.34, lower than $0.45 in the prior-year quarter.
- CSX's Operating Ratio
CSX has been focused on reducing its operating ratio. Despite the challenges during the pandemic, CSX reported a low figure of 58.8% in 2020, just 40 bps higher compared to 58.4% in 2019. In 2021, the company's operating ratio stood at 55.3%. And in 2024, the figure rose to 63.9% due to inflationary pressure. The company is expected to bring this metric under 60% going forward.
- Trends In Coal Shipments
With the increased use of cleaner sources of energy, such as natural gas, the demand for coal has dropped drastically over the last few years. Consequently, coal shipments have witnessed a decline. However, if there is any sharp movement in natural gas prices, it would result in higher coal demand. The coal export demand has remained robust in recent years.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are the key drivers of CSX's value that present opportunities for upside or downside to the current Trefis price estimate:
- CSX's Revenue Per Carload of Coal: Our current projection anticipates CSX's Revenue Per Carload for Coal increasing from $3,053 in 2024 to $3,500 by our forecast's conclusion. However, should this metric reach approximately $5,000 by that time, due to improved pricing, our price estimate could see a 5% increase.
- CSX's EBITDA margin: Our current forecast anticipates CSX's EBITDA margin improving to 53% from 47% in 2024, largely due to the company's productivity efforts. However, if these initiatives underperform and margins remain around 48% by the end of our forecast period (instead of our base case of 54%), it could result in a roughly 10% downside to our price estimate..
BUSINESS SUMMARY
CSX (NASDAQ: CSX) stands as a leading railroad in the Eastern U.S., focusing primarily on freight transportation across the Southeast, East, and Midwest regions of the country.
Beyond its core Eastern network, CSX facilitates the movement of overseas freight through Atlantic and Gulf Coast ports and connects with the Western U.S. via interchanges with other rail carriers.
Operating a rail network spanning over 20,000 route miles, CSX reaches numerous major population centers across 26 states east of the Mississippi River, as well as Washington D.C., Ontario, and Quebec. Norfolk Southern (NYSE: NSC) is CSX's main competitor, serving a largely overlapping geographic area.
Our analysis of CSX's operations is segmented into four key business lines: Coal Freight; Merchandise Freight (encompassing chemicals, automotive, agriculture, and other commodities); Intermodal Freight (freight suitable for transfer between rail and other transport modes); and Trucking & Others, which includes revenue from trucking operations and non-directly operated railroads, revenue from unmet customer volume commitments, and miscellaneous items.
CSX's diverse customer base includes steamship lines, vehicle manufacturers, agricultural companies, utilities, intermodal companies, and chemical producers.
SOURCES OF VALUE
We believe Merchandise Freight represents CSX's most significant value driver. This is primarily due to the following factors:
Ongoing Constraints in Trucking Capacity
Persistent challenges within the trucking industry, such as limitations in fleet sizes and an ongoing shortage of truck drivers, continue to constrain overall freight transport capacity. Regulations like the Hours-of-Service rules for commercial drivers further impact trucking capacity by restricting drivers' working hours. These limitations in trucking are likely to drive a shift of some freight volume to railroads, enhancing their pricing power as demand for their services increases.
Sustained U.S. Economic Activity
While the U.S. economy experienced robust growth prior to the COVID-19 pandemic, supported by sectors like automotive, industrials, and housing, CSX benefited through increased carload volumes in its Industrials, Housing & Construction, and Automotive segments. Current economic forecasts generally anticipate continued, albeit potentially moderate, growth in the coming years, which should positively influence CSX's performance.
