CSX’s Q3 Performance Falls Short as Investor Sentiment Dips

CSX (NYSE: CSX) has released its Q3 earnings, revealing revenues and profits slightly below expectations. The company’s revenue stood at $3.6 billion with earnings of $0.46 per share, whereas estimates were at $3.7 billion and $0.49, respectively. This article explores CSX’s stock performance, vital highlights from these results, and its valuation.

CSX’s Q3 Financial Summary

For Q3, CSX reported revenue of $3.6 billion, reflecting a 1% year-over-year increase. This growth was propelled by a 3% rise in total volume, although it faced a 1% decline in Average Revenue Per Unit (ARPU) and lower other revenues. The Merchandise segment drove this growth, with a 3% increase in volume and a 2% rise in ARPU. Conversely, coal freight continued to decline, experiencing decreased volumes and pricing. Additionally, lower oil prices led to reduced fuel surcharges for the company during the quarter. Importantly, CSX’s operating margin improved by 180 basis points year-over-year, reaching 37.4% in Q3, which, combined with revenue growth, resulted in a 6% increase in earnings to $0.46 per share.

Looking Ahead: Challenges for CSX

As CSX looks to Q4, it anticipates several obstacles, including the effects of lower oil prices and the aftermath of recent hurricanes. The company also expects reduced volumes in the metals and automobile sectors, along with a weak trucking market. With coal markets still struggling, CSX may face a challenging quarter ahead.

The Market’s Reaction to CSX’s Results

The disappointing Q3 results and the uncertain outlook led to a 7% drop in CSX’s stock price following the announcement. Our valuation places CSX’s stock at $35 per share, close to its current trading price. This valuation reflects a price-to-earnings (P/E) multiple of nearly 19x, based on anticipated earnings of $1.88 per share for the entire year of 2024. This P/E ratio is consistent with the stock’s average P/E over the past five years.

CSX’s Performance Compared to Market Trends

CSX has struggled lately, exhibiting a -4% return this year, in stark contrast to the S&P 500’s 22% gains. Over a longer time frame, CSX’s three-year return has been volatile, closely mirroring the S&P 500. In comparison, the Trefis High Quality (HQ) Portfolio, which consists of 30 stocks, has consistently outperformed the S&P 500 each year during this same period. This portfolio showcases better returns with lower risk, as demonstrated by its performance metrics.

Analyzing CSX in Context

Considering CSX’s current valuation, it’s valuable to analyze how CSX’s peers are performing against key metrics. For a broader comparison of companies across different sectors, visit our Peer Comparisons section.

[1] Returns as of 10/18/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.