We've been asking ourselves recently if the market has placed a fair valuation on CSX. Let's dive into some of the fundamental values of this large-cap Industrials company to determine if there might be an opportunity here for value-minded investors.
CSX's Valuation Is in Line With Its Sector Averages:
CSX Corporation, together with its subsidiaries, provides rail-based freight transportation services. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 20.49 and an average price to book (P/B) ratio of 3.78. In contrast, CSX has a trailing 12 month P/E ratio of 17.2 and a P/B ratio of 5.38.
CSX's PEG ratio is 2.67, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
EPS Growth Achieved Primarily Through Stock Repurchases:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $12,250 | $11,937 | $10,583 | $12,522 | $14,853 | $14,707 |
| Gross Margins | 40% | 42% | 41% | 45% | 41% | 39% |
| Operating Margins | 40% | 42% | 41% | 45% | 41% | 39% |
| Net Margins | 27% | 28% | 26% | 30% | 28% | 28% |
| Net Income (MM) | $3,309 | $3,331 | $2,765 | $3,781 | $4,166 | $4,166 |
| Net Interest Expense (MM) | $74 | $88 | $19 | $79 | $133 | $150 |
| Depreciation & Amort. (MM) | $1,331 | $1,349 | $1,400 | $1,400 | $1,500 | $1,587 |
| Earnings Per Share | $1.28 | $1.39 | $1.2 | $1.68 | $1.95 | $2.39 |
| Diluted Shares (MM) | 2,583 | 2,395 | 2,305 | 2,255 | 2,141 | 1,741 |
| Free Cash Flow (MM) | $2,896 | $3,193 | $2,637 | $3,308 | $3,486 | $3,127 |
| Capital Expenditures (MM) | $1,745 | $1,657 | $1,626 | $1,791 | $2,133 | $2,286 |
| Net Current Assets (MM) | -$21,584 | -$23,116 | -$22,242 | -$23,158 | -$25,438 | -$26,537 |
| Long Term Debt (MM) | $14,739 | $15,993 | $16,304 | $16,185 | $17,896 | $17,903 |
| Net Debt / EBITDA | 2.26 | 2.42 | 2.36 | 2.04 | 2.16 | 2.26 |
CSX has growing revenues and increasing reinvestment in the business, average operating margins with a stable trend, and healthy leverage. However, the firm suffers from slimmer gross margins than its peers and good EPS growth resulting mainly from stock repurchases. Finally, we note that CSX has irregular cash flows.
