Why Did CSX Stock Fall 7%?

CSX (NYSE: CSX) recently reported its Q3 results, with revenues and earnings slightly below our estimates. The company reported revenue of $3.6 billion and earnings of $0.46 per share, compared to our estimates of $3.7 billion and $0.49, respectively. In this note, we discuss CSX’s stock performance, key takeaways from its recent results, and valuation.

How Did CSX Perform In Q3?

CSX’s revenue of $3.6 billion in Q3 was up 1% y-o-y, driven by a 3% rise in overall volume, mostly offset by a 1% decline in ARPU and lower other revenues. Looking at segments, Merchandise led the growth, with 3% volume gains and ARPU up 2%. On the flip side, coal freight continued to struggle with lower volumes and pricing. Furthermore, lower oil prices resulted in lower fuel surcharge for CSX during the quarter. The company’s operating margin improved 180 bps y-o-y to 37.4% in Q3. Revenue growth clubbed with margin expansion resulted in earnings growth of 6% to $0.46 per share.

Looking forward, CSX expects headwinds in Q4, due to lower oil prices and the impact of recent hurricanes. Furthermore, the company expects headwinds from lower volume for metals and automobile and a weak trucking market. With coal markets also remaining weak, CSX may have a tough Q4.

What Does This Mean For CSX Stock?

A downbeat Q3 and bleak outlook for the next quarter didn’t sit well with the investors, and CSX stock dropped 7% post its results announcement. We estimate CSX’s Valuation to be $35 per share, close to its current market price. This represents a little under a 19x P/E multiple and expected earnings of $1.88 per share for the full year 2024. The 19x figure broadly aligns with the stock’s average P/E ratio seen over the last five years.

Now, CSX has underperformed, with -4% returns with year, vis-à-vis 22% gains for the S&P 500 index. Looking at a slightly longer term, the returns for CSX stock over the last three-year period has been far from consistent and has largely been as volatile as the S&P 500. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile, and it 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.

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 10/18/2024
[2] Cumulative total returns since the end of 2016

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