Rail-based freight transportation services provider CSX Corporation (CSX) connects more than 240 short-line railroads and more than 70 ocean, river, and lake ports with major population centers and farming towns.

On October 20, 2022, Joe Hinrichs, CSX’s President and CEO, said, “CSX has great potential for profitable growth over the long term, and my key objective is to help ensure that we realize this opportunity while building a robust organization that will help drive additional value for our customers, our employees, and our shareholders.”

The company has a record of paying consecutive dividends for 32 years. Its dividend payouts have grown at 9.2% CAGR over the past five years and 7.9% CAGR over the past three years. Its current dividend yield is 1.38%, while its four-year average yield is 1.25%.

CSX has lost 22.7% year-to-date and 18.6% over the past year to close the last trading session at $29.07. However, it has gained 9.1% over the past month. Wall Street analysts expect the stock to hit $32.20 in the near term, indicating a potential upside of 10.8%.

Here is what could shape CSX’s performance in the near term:

Solid Financials

CSX’s revenue came in at $3.90 billion for the third quarter that ended September 30, 2022, up 18.3% year-over-year. Its net earnings came in at $1.11 billion, up 14.8% year-over-year, while its EPS came in at $0.52, up 20.9% year-over-year.

Moreover, its cash and cash equivalents came in at $2.31 billion for the period ended September 30, 2022, compared to $2.24 billion for the period ended December 31, 2021.

In addition, despite widespread macro headwinds, CSX’s financials surpassed analysts’ estimates for the last reported quarter. Analysts expected CSX’s revenue and EPS to come in at $3.75 billion and $0.49, respectively. The company surpassed the estimates by 3.9% and 5.2%, respectively.

Mixed Valuation

CSX’s forward EV/Sales of 5.23x is 221.8% higher than the industry average of 1.62x, while its forward Price/Sales of 4.18x is 228.6% higher than the industry average of 1.27x.

However, CSX’s forward P/E of 15.03x is 15.2% lower than the industry average of 17.72x. Its forward EV/EBITDA of 10.44x is lower than the industry average of 10.54x. Also, its forward Price/Cash Flow of 10.98x is 14.6% lower than the industry average of 12.86x.

Robust Profitability

CSX’s trailing-12-month gross profit margin of 49.99% is 70% higher than the industrial average of 29.40%. Its trailing-12-month EBITDA margin of 49.99% is 274.7% higher than the industry average of 13.34%, while its trailing-12-month net income margin of 28.05% is 312.6% higher than the industry average of 6.80%.

In addition, its trailing-12-month ROCE, ROTC, and ROTA of 31.34%, 11.90%, and 9.66%, compared with the industry averages of 14.29%, 6.76%, and 5.12%, respectively.

POWR Ratings Reflect Promising Outlook

CSX has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has a B grade for Quality, consistent with its higher-than-industry profitability margins.

It has a B grade for Sentiment, in sync with analysts expecting CSX’s revenue and EPS to grow 19% and 22.6% year-over-year to $14.90 billion and $1.90, respectively, in 2022.

Also, it has a C grade for Value, in sync with its mixed valuation multiples.

In the 16-stock Railroads industry, CSX is ranked #7. The industry is rated B.

Click here for the additional POWR Ratings for CSX (Growth, Momentum, and Stability).

View all the top stocks in the Railroads industry here.

Bottom Line

CSX reported solid financials in its 2022 third quarter. Moreover, its EPS is expected to grow 11.3% per annum for the next five years. Given the stock’s solid fundamentals and reliable dividend history, I think CSX might be an ideal addition to your portfolio.

How Does CSX Corporation (CSX) Stack Up Against Its Peers?

While CSX has an overall POWR Rating of B, one might consider looking at its industry peers, Canadian National Railway Company (CNI), West Japan Railway Company (WJRYY), and Norfolk Southern Corporation (NSC), which also have an overall B (Buy) rating.

CSX shares were trading at $29.07 per share on Wednesday morning, up $0.01 (+0.03%). Year-to-date, CSX has declined -21.97%, versus a -18.10% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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