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 (%)|
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 (%)|
CSX's Operating Margins
|Date Reported||Total Revenue ($ MM)||Operating Expenses ($ MM)||Operating Margins (%)||YoY Growth (%)|
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.
|Vanguard Group, Inc. (The)||184,938,921||2022-09-29||9%||$5,623,992,559|
|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|