UKRAINE – 2021/06/15: In this photo illustration a CSX Corporation logo seen displayed on a … [+] smartphone. (Photo Illustration by Valera Golovniov/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
CSX Corporation (NYSE: CSX) is scheduled to report its Q2 2020 results on Wednesday, July 21. We expect CSX to likely post revenue and earnings slightly below the consensus estimates. That said, the company likely navigated well over the latest quarter, driven by an expected increase in intermodal demand as well as a rebound in merchandise freight. Furthermore, the company has been able to keep its overall costs in check even during the challenging environment of the pandemic, a trend expected to continue in Q2, as well.
While we estimate the revenue and earnings to be just a tad below the consensus estimates, our forecast indicates that CSX’s valuation is around $35 per share, which is 10% above the current market price of around $32. Our interactive dashboard analysis on CSX Corporation’s Pre-Earnings has additional details.
(1) Revenues expected to be slightly below the consensus estimates
Trefis estimates CSX’s Q2 2021 revenues to be around $2.88 Bil, slightly below the $2.92 Bil consensus estimate. The rise in vaccination rate in the U.S. has resulted in a pickup in economic activities, and this should bode well for CSX’s freight business. The trucking industry still faces driver shortages, and railroad companies, including CSX, likely benefited from this with some of the trucking business shifting to intermodal. Looking back at Q1 2021, revenues declined 1% to $2.8 Bil, as a double-digit growth in intermodal revenues was more than offset by lower merchandise and coal freight revenue. Our dashboard on CSX Corporation’s Revenues offers more details on the company’s segments.
2) EPS likely to be slightly below the consensus estimates
CSX’s Q2 2021 earnings per share is expected to be $0.36 per Trefis analysis, just a cent below the consensus estimate of $0.37. CSX’s net income of $706 million in Q1 2021 reflected an 8% drop from its $770 million figure in the prior-year quarter. This can be attributed to lower revenues, and over 200 bps rise in operating ratio to 60.9%, partly due to higher inflation. Looking forward, with a rebound in merchandise freight volume, we expect the company to see margin expansion, portending well for the overall earnings growth in Q2. For the full-year 2021, we expect the EPS to be $1.46 compared to $1.20 in 2020.
(3) Stock price estimate 10% above than the current market price
MORE FOR YOU
Going by our CSX’s Valuation, with an EPS estimate of around $1.46 and a P/E multiple of around 24x in 2021, this translates into a price of $35, which is 10% above the current market price of around $32. At the current price of $32, CSX stock is trading at 22x its 2021 earnings estimate of $1.46 per share, which compares with levels of over 25x seen in 2020. Note that the railroad stocks, including CSX have seen a correction this month, after the reports of the Biden administration working on an executive order to address the issue of inflated and anti-competitive pricing for railroad and ocean shipping companies. We will be looking forward to hear views on pricing concerns, if any, from the company’s management during its earnings conference call.
Although the continued challenges in the energy freight business will have some impact on CSX’s overall revenue growth rate in 2021, we believe the demand for intermodal and merchandise segments will see a rebound, driven by the resumption of economic activities and increased demand for transportation.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year
While CSX stock may have more room for upside, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Canadian Pacific Railway vs. D R Horton.