Here’s A Better Pick Over CSX Stock

We believe Old Dominion Freight Line stock (NASDAQ: ODFL) is currently a better pick than CSX Corporation stock (NYSE: CSX), given its better prospects. Although Old Dominion is trading at a comparatively higher valuation of 5.4x trailing revenues vs. 4.7x for CSX, this valuation gap is justified given its better revenue growth and lower financial risk, as discussed below.

Looking at stock returns, ODFL has fared slightly better with -9% returns over the last twelve months, compared to -12% returns for CSX. Both stocks have outperformed the broader markets, with the S&P500 falling 17% over this period. There is more to the comparison, and in the sections below, we discuss why we believe ODFL stock will offer better returns than CSX stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of CSX vs. Old Dominion Freight Line: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Old Dominion’s Revenue Growth Is Better

• Both companies posted double-digit sales growth over the last twelve months. Still, Old Dominion’s revenue growth of 25.6% is higher than 22.1% for CSX.
• Even if we look at a longer time frame, Old Dominion fares better, with its sales rising at an average annual growth rate of 10.1% to $5.3 billion in 2021, compared to around $4.0 billion in 2018. In comparison, CSX’s sales grew at an average rate of 1.5% to $12.5 billion in 2021, compared to $12.3 billion in 2018.
• 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 – in 2021, 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.
• There are near-term headwinds for CSX. 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.
• Barring 2020, Old Dominion’s revenue has been steadily rising with increased demand for the trucking industry. It has recently benefited from a rise in volume driven by increased demand, available network capacity, and better pricing, including higher fuel surcharges.
• Our CSX Revenue Comparison and Old Dominion Freight Line Revenue Comparison dashboards provide more insight into the companies’ sales.
• Looking forward, Old Dominion’s revenue is expected to grow faster than CSX’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 9.3% for Old Dominion, compared to just a 2.7% CAGR for CSX, based on Trefis Machine Learning analysis.
• Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. CSX Is More Profitable But Comes At A Higher Risk

• CSX’s operating margin of 35.8% over the last twelve months is better than 28.9% for Old Dominion.
• This compares with 35.4% and 19.9% figures seen in 2019, before the pandemic, respectively.
• CSX’s free cash flow margin of 38% is also better than 27% for Old Dominion.
• Our CSX Corporation Operating Income Comparison and Old Dominion Freight Line Operating Income Comparison dashboards have more details.
• Looking at financial risk, Old Dominion is better placed with <1% debt as a percentage of equity compared to 26.4% for CSX, while its 7.8% cash as a percentage of assets is higher than 5.7% for CSX, implying that Old Dominion has a better debt position and it has more cash cushion.

3. The Net of It All

• We see that Old Dominion has demonstrated better revenue growth over CSX over the last twelve months and the last three years. It comes at a lower financial risk with a better debt position and more cash cushion. On the other hand, CSX is more profitable, and it is available at a comparatively lower valuation.
• Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Old Dominion is currently the better choice of the two, despite it being the more expensive of the two.
• The table below summarizes our revenue and return expectation for both companies over the next three years and points to an expected return of 16% for Old Dominion over this period vs. a 5% expected return for CSX stock, implying that investors are better off buying ODFL over CSX, based on Trefis Machine Learning analysis – CSX vs. Old Dominion Freight Line – which also provides more details on how we arrive at these numbers.

While ODFL stock may outperform CSX, 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 fell 11% last 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.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

[1] Month-to-date and year-to-date as of 1/9/2023
[2] Cumulative total returns since the end of 2016

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