CSX Corporation: a rail transportation leader with long-term growth potential

CSX Corporation is one of North America's largest railroad companies with steady growth and solid financial fundamentals. The company operates an extensive rail network in the eastern U.S. that allows it to efficiently transport a wide range of products. Strong results, a strong balance sheet, decent margins, and a likely undervalued stock price - that's CSX Crosporation.

CSX Corporation $CSX is one of the largest railroad companies in the United States. It operates an extensive rail network in the eastern U.S., connecting 23 states and the District of Columbia. The company was founded in 1980 and is headquartered in Jacksonville, Florida.

CSX focuses on freight railroads and transports a wide range of products, from coal and chemicals to automobiles and consumer goods. It owns and operates approximately 21,000 miles of track, making it the third largest rail network in the United States.

CSX's key competitive advantages include its extensive rail infrastructure, efficient operations and diversified customer base. The company has significantly improved operating efficiencies in recent years through its "Scheduled Railroading" project. This has focused on optimizing scheduling, reducing car and locomotive inventory and lengthening train sets. This has allowed CSX to reduce costs and increase operating margins.

The main risks to CSX are competition from road and water transportation and possible economic slowdowns. As the road network develops, railroads are becoming less important for transporting certain commodities. In addition, the heavy industry sector served by CSX is generally more exposed to recessions.

CSX Corporation is one of the most significant players in the U.S. freight rail industry. With its extensive infrastructure, operational efficiencies and strong customer base, the company is well positioned to maintain this position in the future.

Finance

The company's revenue has been growing in recent years, up 25% over the last 4 years. In 2022, they will reach nearly $15 billion.

Cost of sales is growing slower than revenue, which translates positively into profit margins. Over the last 4 years, cost of sales has grown 28% while gross profit has grown 36%. Operating margins have increased from 41% to 49%. This demonstrates that CSX is succeeding in reducing costs and increasing efficiency.

The company has shown steady operating profit, which has grown 33% over the past 4 years to nearly $6 billion. Net income is growing even faster, up 35% over the same period to $4.2 billion.

CSX has a strong balance sheet with ample liquidity and low debt levels. The total debt to equity ratio is 30% and the net debt to EBITDA ratio is 1.5x. The company is steadily generating free cash flow, which it uses to invest in growth, acquisitions and dividend increases.

Overall, CSX's financial results are very positive. The company is showing steady revenue and earnings growth, healthy financial ratios, and generating sufficient funds to invest in further growth. If this trend can be sustained, CSX has the potential to increase shareholder value in the future.

Balance Sheet

The company has steadily growing assets, which have increased 9% over the past 4 years to $42 billion. The main asset item is tangible fixed assets (railroads, vehicles) valued at $33 billion.

Total liabilities are growing more slowly than assets. As of December 31, 2022, they amounted to USD 29 billion, an increase of 11% in 4 years. The main liability item is long-term loans and borrowings.

Shareholders' equity has grown 16% over 4 years to USD 13 billion. The company shows a relatively low level of financial leverage with a total debt to equity ratio of 30%. Operating cash flow covers interest payments on debt 8 times.

CSX has ample liquidity with working capital of $1.4 billion and cash of $1.2 billion. Free cash flow is primarily used to invest in infrastructure development, pay down debt and increase dividends.

The net cash position (net of short-term financial investments) is USD 813 million. The ratio of net debt to EBITDA is low at 1.5x. This shows that the company is not overleveraged and has sufficient flexibility to continue to fund investments.

Cash Flow

The company has been steadily generating strong operating cash flow, which has grown 16% over the last 4 years to USD 5.6 billion. This demonstrates CSX's ability to efficiently convert earnings into cash.

Investing cash flow is negative as the company continually invests in rail infrastructure renewal and development. In recent years, investments have been about $2 billion per year.

Financial cash flow is also negative as the company pays down debt and returns capital to shareholders through dividends and share repurchases. In 2022, this represented an outflow of USD 3.8 billion.

Free cash flow after investments and debt repayments was USD 3.5 billion in 2022, indicating the company's ability to generate funds beyond current operating needs.

CSX's very strong cash flow demonstrates the company's financial strength and allows it to fund growth investments without over-reliance on external debt. I consider the ability to generate significant free cash flow over the long term to be one of CSX's greatest competitive advantages.

CSX has a market capitalization of just under $61 billion. Its stock currently trades at a P/E of 15.5, which is slightly below the average of the S&P 500 index. The discounted dividend model (DDM), at a required yield of 9% and dividend growth of 6%, shows an intrinsic value of $38 per share. The equity multi-factor model (FFM) with a beta of 1.2, a market premium of 6%, and a risk-free rate of 2% suggests a fair value of $37. The average of the two models is $38, which represents a potential upside of 26% to the share price.

The company has steady revenue growth of around 5% per year and operating margins of around 40%, generating strong cash flow that covers both growth investments and debt repayments and distributions to shareholders. It has relatively low debt with a debt-to-equity ratio of 1.4x and net debt to EBITDA of 1.2x.

Earnings per share growth is expected to be around 9% per annum over the next 5 years. The company is increasing its dividend, which currently yields 1.5%. It is also conducting share buybacks, which positively impacts earnings per share.

• So I rate the company very positively, and if I hadn't invested in $UNP, I would probably reach for CSX.

Analyst Predictions

The 25 analysts offering 12-month price forecasts for CSX Corp have a median target of 35.00, with a high estimate of 39.00 and a low estimate of 24.00. The median estimate represents a +15.99% increase from the last price of 30.18.

• What do you think of the company? 🤔

Please note that this is not financial advice. Every investment must go through a thorough analysis.