What Led To A 25% Fall In CSX Stock Since 2021?

After a 9% fall, year-to-date, CSX stock (NYSE: CSX) has some room for growth, in our view. CSX stock has declined from $31 in early January to around $28 now. The YTD 9% fall for CSX marks an underperformance with the 3% returns for the broader S&P500 index. The recent fall for CSX can be attributed to investor concerns over rising microenvironment risks, elevated costs, a continued rise in interest rates, and a likely recession in the coming months.

Looking at a slightly longer term, CSX stock is down 25% from levels seen in late 2021. This can be attributed to 1. the company’s P/S ratio, which plunged 40% to 3.9x trailing revenues from 6.6x in 2021, partly offset by 2. a 19% rise in CSX’s revenue to $15 billion, and 3. its average shares outstanding falling 6% to 2.1 billion, driven by share repurchases of $7.6 billion. Our interactive dashboard, Why CSX Stock Moved, has more details.

CSX’s revenue growth in 2022 was led by a 19% rise in average revenue per carload, while the total volume of carloads was down 1%. Although the company continues to see softer volume growth, it has benefited from a robust pricing environment clubbed with higher fuel surcharges, aiding the average revenue per carload. For perspective, CSX’s total volume of carloads remained flat between 2019 and 2022, while its average revenue per unit rose 14%, driving its freight revenue growth. CSX has also benefited from its acquisition of Quality Carriers – a trucking company focused on bulk liquid chemicals transportation – in 2021, bolstering revenue growth in the recent past.

Furthermore, the company has consistently improved its operating ratio, which fell to 55.3% in 2021, vs. 58.4% in  2019, before rising to 59.4% in 2022 due to an overall cost increase amid higher inflation. Our CSX Operating Income Comparison dashboard offers more details. The company’s bottom line increased 16% y-o-y to $1.95 in 2022, led by higher revenues and share buybacks.

However, 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 fears of a recession will likely weigh on CSX’s near-term performance.

Looking at valuation, we find that CSX stock has room for growth. At its current level of $28, CSX is trading at a little under 15x its forward expected earnings of $1.92 per share, compared to the last three-year average of 17x. Even if we were to look at CSX stock from a P/S perspective, it is currently trading at just 3.9x trailing revenues, compared to the last five-year average of 5.1x. Our CSX (CSX) Valuation Ratios Comparison has more details.

Given the near-term macroeconomic headwinds discussed above, a slight decline in the trading multiple is justified. However, the current and historical average gap looks steep in our view. We estimate CSX’s valuation to be $34 per share, reflecting a 21% upside from its current market price of $28.

While CSX stock looks like it can see higher levels, 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 9% 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.

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 3/24/2023
[2] Cumulative total returns since the end of 2016

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