CSX Will Deliver Long-Term Upside

CSX (CSX) recently posted third-quarter results that revealed weakness in the company’s performance. The company’s revenue of $2.94 billion was down 4% sequentially. Also, CSX declared third-quarter net earnings of $507 million, or $0.52 per share, slightly down year-over-year from $509 million or $0.51 per share in the third quarter of 2014.

The railroad company reported sequential and year-over-year reduction in both its top and bottom lines primarily due to the weaker recovery in the global commodity pricing environment, hurting the margins of the company.

Weaker times ahead

CSX’s overall outlook for the fourth quarter of 2015 is down with weaker growth expectations for chemicals, metals, domestic coal, export coal, forest products, phosphate & fertilizer, and waste and equipment.
This is due to several factors such as weak crude oil prices and declines estimated in the energy market, poor estimated steel production levels, and weak natural gas prices.

Still, automotive and intermodal segments have favorable growth outlook with continued success of H2R conversions and automotive volumes estimated to grow with NALVP. The shipments of Minerals, food & consumer and agricultural products are believed expand neutrally with growing capacity to cover complete domestic harvest amid challenging international markets and enhancement in services helps to maintain competitiveness of the consumer products.

Going forward, there’s mixed outlook for the key commodities being carried by the railroad major with some illustrating volume expansions while others with only neutral growth or decline in volumes, given an uncertain global commodity demand and pricing environment.

CSX has invested significantly and over $50 billion in the last two years to successfully cater to the rise in demand, into modernization of their networks, key maintenance, developing double tracks and leveraging new equipments such as locomotives. In addition, the railroad company has decided to spend an additional $29 billion during this year.

Despite, tough global operating environment CSX has managed to maintain a healthy cash position to invest into prospective growth opportunities while returning steadily impressive shareholder returns.

TheStreet Ratings team rates CSX Corp as a “Buy” with a ratings score of B and primarily driven by some significant strengths, which are believed to outweigh any of the company’s weaknesses and empower investors to harness greater returns. The company's strengths are observed in several areas, like its strong financial position with reasonably lower debt levels, logical valuation levels, superb operating cash flows, expanding earnings per share and impressive profit margins. Contrastingly, the only weakness is the company’s weaker stock performance.


Overall, the investors are advised to purchase equity in CSX Corp. looking at the company’s valuation with trailing P/E and forward P/E ratios of 13.58 and 13.06 respectively, indicating a low-priced stock compared to somewhat expensive industry’s average P/E of 20.83.

The profit margin of 16.31% also looks impressive. So, it will be a good idea to remain invested in CSX shares for long-term gains.
Published on Nov 6, 2015
By Harsh Singh Chauhan

Copyrighted 2020. Content published with author's permission.

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