The railroad industry is thriving thanks to the rising freight demand. Freight railroads are aggressively looking to hire employees and bolster their operations to keep up with the surging demand amid supply disruptions.
Although the industry faces headwinds like congested ports, labor and equipment shortages, and rising fuel prices, CSX Corporation (CSX) managed to beat the consensus EPS and revenue estimates in the last quarter.
CSX provides rail-based freight transportation services, including traditional rail service and transport of intermodal containers and trailers, as well as other transportation services such as rail-to-truck transfers and bulk commodity operations.
CSX’s EPS came in 8.3% higher than what analysts estimated, while its revenue beat the consensus estimate by 4% in the second quarter. It surpassed Street EPS estimates in each of the trailing four quarters.
CSX’s stock has declined 14.3% in price year-to-date, while it has gained 1.6% over the past year to close the last trading session at $32.21. The stock is trading 16.6% below its 52-week high of $38.63, which it hit on March 7, 2022.
Here’s what could influence CSX’s performance in the upcoming months:
Strategic Acquisition
On June 1, 2022, CSX announced the acquisition of Pan Am Railways, Inc. (Pan Am). The acquisition will help CSX expand into the fast-growing Northeast region of the country.
CSX President and CEO James M. Foote said, “This acquisition demonstrates CSX’s growth strategy through efficient and reliable freight service and will provide sustainable and competitive transportation solutions to New England and beyond.”
Robust Financials
CSX’s revenue increased 27.6% year-over-year to $3.81 billion for the second quarter ended June 30, 2022. The company’s operating income increased 0.7% year-over-year to $1.70 billion. Its net earnings increased marginally to $1.17 billion. Also, its EPS came in at $0.54, representing an increase of 3.8% year-over-year.
Favorable Analyst Estimates
CSX’s EPS for fiscal 2022 and 2023 is expected to increase 20.2% and 5.2% year-over-year to $1.87 and $1.97. Its revenue for fiscal 2022 and 2023 is expected to increase 17.7% and 1.3% year-over-year to $14.74 billion and $14.92 billion.
High Profitability
In terms of trailing-12-month gross profit margin, CSX’s 50.89% is 74.9% higher than the 29.10% industry average. Likewise, its 50.89% trailing-12-month EBITDA margin is 293.4% higher than the industry average of 12.94%. Furthermore, the stock’s 28.24% trailing-12-month net income margin is 317.3% higher than the industry average of 6.77%.
POWR Ratings Show Promise
CSX has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. CSX has a B grade for Quality, consistent with its high profitability.
It has a B grade for Sentiment, in sync with its favorable analyst estimates.
CSX is ranked #5 out of 15 stocks in the B-rated Railroads industry. Click here to access CSX’s ratings for Growth, Value, Momentum, and Stability.
Bottom Line
As freight demand remains strong this year, rail-based freight transport companies such as CSX should benefit. Its acquisition of Pan Am Railways should help the company grow its revenues.
CSX is trading above its 50-day and 100-day moving averages of $31.57 and $31.93, indicating an uptrend. Given its strong fundamentals, favorable analyst estimates, and high profitability, it could be wise to buy the stock now.
How Does CSX Corporation (CSX) Stack Up Against its Peers?
CSX has an overall POWR Rating of B, equating to a Buy rating. You might want to consider investing in the following Railroads stocks with an A (Strong Buy) or B (Buy) rating: ComfortDelGro Corporation Limited (CDGLY), Westinghouse Air Brake Technologies Corporation (WAB), and Norfolk Southern Corporation (NSC).
CSX shares were trading at $32.55 per share on Friday afternoon, up $0.34 (+1.06%). Year-to-date, CSX has declined -12.63%, versus a -13.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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