Is There Any Room For Growth In CSX Stock After An Upbeat Q1?

CSX (NYSE: CSX) recently reported its Q1 results, with revenues and earnings marginally above the street estimates. The company reported revenue of $3.68 billion and earnings of $0.46 per share, compared to the consensus estimates of $3.66 billion and $0.45, respectively. Although CSX posted an upbeat Q1, we think its stock is appropriately priced at levels of around $35. In this note, we discuss CSX’s stock performance, key takeaways from its recent results, and valuation.

Firstly, looking at its stock performance, 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, GE, and UNP, and even for the megacap 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 $37 per share, close to its current market price of around $35. At its current levels, CSX stock is trading at 18x forward expected earnings of $1.97 per share for the full year 2024. The 18x figure aligns with the stock’s average P/E multiple over the last five years.

CSX’s revenue of $3.7 billion in Q1 was down 1% y-o-y, partly due to lower fuel surcharges and trucking demand. Overall volume was up 3%, while the average revenue per unit fell 4% during the quarter. The company saw its operating margin deteriorate by 270 bps y-o-y to 36.8%. Lower revenues and margin contraction led to a 4% y-o-y fall in the bottom line to $0.46 per share in Q1’24. Looking forward, CSX expects total volume and sales to grow in low to mid-single-digits in 2024.

While CSX stock looks like it is 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.

[1] Returns as of 4/20/2024
[2] Cumulative total returns since the end of 2016

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