CSX Corporation's CSX top line is bolstered by increased export coal volumes and domestic intermodal shipments. The company is actively working to preserve shareholders' capital while lowering costs. However, CSX is grappling with major headwinds like supply-chain disruptions and high capex, which are adversely impacting its bottom line.
Factors Favoring CSX
High export coal volumes, increased domestic intermodal shipments and growth in other segments alongside pricing gains are boosting CSX’s top line. In 2023, coal volumes rose by 3% due to strong export demand, and this trend continued into the first quarter of 2024. We expect a 1.6% increase in coal volumes in the second quarter of 2024 compared to the same period in 2023. High export coal prices and fuel surcharge revenues are expected to further bolster the top line in the near term.
CSX is actively working to preserve shareholders' capital while lowering costs. In February 2024, the company announced a 9.1% increase in its quarterly dividend to 12 cents per share. CSX has been consistently rewarding its shareholders through dividends and buybacks, returning more than $3.7 billion in 2021, $5.58 billion in 2022 and $4.36 billion in 2023.
CSX's commitment to improving workplace safety for employees is commendable. The Federal Railroad Administration (“FRA”) Personal Injury Frequency Index, which measures the number of FRA-reportable injuries per 200,000 man-hours, improved to 0.89 in 2023 from 1.01 in 2022. The FRA train accident rate improved to 3.32 in 2023 from 3.37 in 2022. In 2024, the company plans to launch a new safety training program for operations leaders.
CSX's current ratio (a measure of liquidity) at the end of the first quarter of 2024 stood at 1.15, much higher than the 0.83 reading for its industry. A current ratio of greater than 1 is desirable. CSX’s cash and cash equivalents were $1.48 billion at the end of the first quarter of 2024, much higher than the current debt of $557 million. This implies that the company has sufficient cash to meet its current debt obligations.
Key Risks
CSX is facing several headwinds, including locomotive or crew/labor shortages and other service disruptions caused by network issues and supply-chain disruptions, which are hurting its operating efficiency and shipment volume.
CSX's management expects 2024 capex to be approximately $2.5 billion, which is higher than the 2023 actuals. The rising capex is likely to strain its bottom line if the company's assets don’t generate sufficient revenues to offset higher depreciation costs.
Shares of CSX have risen 0.2% over the past six months compared with its industry’s 2.1% appreciation.
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Zacks Rank
CSX currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks from the Zacks Transportation sector are SkyWest SKYW and GATX GATX.
SkyWest currently sports a Zacks Rank #1 (Strong Buy) and has an expected earnings growth rate of 784.4% for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.
SKYW delivered a trailing four-quarter earnings surprise of 128.1%, on average. Shares of SkyWest have surged 124.7% in the past year.
GATX currently carries a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 7.6% for the current year.
The company has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the last four quarters and missed once. The average beat is 7.5%. Shares of GATX have risen 14% in the past year.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
