What’s Next For CSX Stock After A 12% Rise Last Year?

CSX (NYSE: CSX) reported its Q4 results last week, with revenues and earnings slightly above the street estimates. However, we believe that CSX stock is appropriately priced, as discussed below. The company reported revenue of $3.7 billion, reflecting a 1% fall from the prior year period and slightly above the $3.6 billion street estimate. Its earnings of $0.45 per share were down 8% y-o-y but marginally above the $0.44 consensus estimate. In this note, we discuss CSX’s stock performance, key takeaways from its recent results, and valuation.

CSX stock has witnessed gains of 15% from levels of $30 in early January 2021 to around $35 now, vs. an increase of about 30% for the S&P 500 over this roughly three-year period. However, the increase in CSX stock has been far from consistent. Returns for the stock were 24% in 2021, -18% in 2022, and 12% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that CSX underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the industrials sector, including CAT, UNP, and GE, and even for the mega-cap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could CSX face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, CSX stock looks like it is fully valued. We estimate CSX’s Valuation to be $35 per share, aligning with its current market price. Our forecast is based on an 18x P/E multiple for CSX and expected earnings of $1.99 per share for the full year 2024, aligning with its last five-year average P/E multiple.

CSX’s revenue of $3.7 billion in Q4 was down 1% y-o-y, partly due to lower fuel surcharges and intermodal demand. The trucking and other revenue were also down during the quarter, while the Merchandise segment saw revenue rise 5%. Overall volume was up 1%, while the average revenue per unit fell 3% during the quarter. The company saw its operating ratio deteriorate by 320 bps y-o-y to 64.1%. Lower revenues and margin contraction led to an 8% y-o-y fall in the bottom line to $0.45 per share in Q4’23.

CSX stock is trading at 4.7x sales compared to the last five-year average of 5.1x, implying there isn’t much room for growth if the stock were to trace its historical average valuation multiple. We believe investors will likely be better off waiting for a dip to enter CSX for robust gains in the long run. Furthermore, fears of a potential recession, and its impact on the railroad business, remain a key risk factor for CSX’s near-term growth.

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.

[1] Returns as of 1/29/2024
[2] Cumulative total returns since the end of 2016

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