CSX (CSX) Is Up 0.8% Today - Is It Still an Opportunity?

CSX (CSX) stock climbed 0.8 % this morning. According to our metrics, the company seems fairly valued at today's prices. In the below analysis, we will put CSX's valuation in the context of its mixed growth prospects and mixed market sentiment, which are also strong drivers for share price.

CSX Corporation, together with its subsidiaries, provides rail-based freight transportation services. The large-cap Industrials company is based in Jacksonville, United States and has 22,542 full time employees.

CSX's P/E Ratio Is Better Than the Sector Average

Compared to the Industrials sector's average of 21.46, CSX has a trailing twelve month price to earnings (P/E) ratio of 15.6 and an expected P/E ratio of 15.0. P/E ratios are calculated by dividing the company's share price by its trailing 12 month or forward earnings per share, which stand at $1.95 and $2.03 respectively.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since CSX's P/E ratio is lower than its sector average, we can deduce that the market is undervaluing the company's earnings.

CSX Is Fairly Valued in Terms of Expected Growth

Another factor pointing to CSX's value is its PEG ratio of 1.78. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.

CSX Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since CSX's P/B ratio of 5.0 is higher than its sector average of 3.7, such a margin of safety does not exist for the stock.

Investors Stand to Gain from CSX's Cash Flows

CSX has strong cash flows. With a coefficient of variability of 11.8% and an average growth rate of 4.0%, the company is effectively turning its revenue into cash. We calculate CSX's free cash flows by subtracting capital expenditures (long term investments in the business) from its total cash flows from operations. The table below shows us that capital expenditures are evolving at a 4.1% rate, versus 3.8% for operating expenses:

Date Reported Cash Flow from Operations ($ MM) Capital expenditures ($ MM) Free Cash Flow ($ MM) YoY Growth (%)
2021-12-31 5,099 -1,791 3,308 25.45
2020-12-31 4,263 -1,626 2,637 -17.41
2019-12-31 4,850 -1,657 3,193 n/a

CSX's Margins Are Strong

If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing CSX's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.

CSX's Gross Margins

Date Reported Revenue ($ MM) Cost of Revenue ($ MM) Gross Margins (%) YoY Growth (%)
2021-12-31 12,522 7,382 41.05 -0.41
2020-12-31 10,583 6,221 41.22 0.96
2019-12-31 11,937 7,063 40.83 n/a

CSX's Operating Margins

Date Reported Total Revenue ($ MM) Operating Expenses ($ MM) Operating Margins (%) YoY Growth (%)
2021-12-31 12,522 n/a 41.05 -0.41
2020-12-31 10,583 n/a 41.22 0.96
2019-12-31 11,937 n/a 40.83 n/a

CSX's cost of revenue is growing at a rate of 3.4% in contrast to -0.0% for operating expenses. Sales revenues, on the other hand, have experienced a 3.5% growth rate. As a result, the average gross margins growth is 0.3 and the average operating margins growth rate is 0.3, with coefficients of variability of 0.5% and 0.5% respectively.

We See Mixed Market Signals Regarding CSX

CSX has an average rating of buy and target prices ranging from $39 to $24. At its current price of $30.4, the company is trading -11.69% away from its target price of $34.42. 0.8% of the company's shares are linked to short positions, and 77.4% of the shares are owned by institutional investors.

Holder Shares Date Reported Percentage Value
Vanguard Group, Inc. (The) 184,938,921 2022-09-29 9% $5,623,992,559
Blackrock Inc. 137,888,716 2022-09-29 7% $4,193,195,832
Capital World Investors 98,508,661 2022-09-29 5% $2,995,648,365
State Street Corporation 94,492,398 2022-09-29 4% $2,873,513,808
Soroban Capital Partners LP 57,630,864 2022-09-29 3% $1,752,554,565
Geode Capital Management, LLC 38,531,602 2022-09-29 2% $1,171,746,010
Capital Research Global Investors 38,079,581 2022-09-29 2% $1,158,000,052
Price (T.Rowe) Associates Inc 36,723,434 2022-09-29 2% $1,116,759,622
Bank of America Corporation 30,714,347 2022-09-29 1% $934,023,287
Royal Bank of Canada 27,271,903 2022-09-29 1% $829,338,566
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.