What To Expect From CSX Corporation’s Q1?

CSX Corporation (NYSE: CSX) is scheduled to report its Q1 2020 results on Tuesday, April 20. We expect CSX to likely post revenue and earnings slightly above the consensus estimates, due to 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 recent quarters despite the challenging environment due to the pandemic. The margins are expected to improve with an overall pickup in freight demand, boding well for the company’s earnings growth in Q1.

However, our forecast indicates that CSX’s valuation is around $87 per share, which is 11% below the current market price of around $98. Our interactive dashboard analysis on CSX Corporation’s Pre-Earnings has additional details.

(1) Revenues expected to be in-line with the consensus estimates

Trefis estimates CSX’s Q1 2021 revenues to be around $2.8 Bil, in-line with the $2.8 Bil consensus estimate. The gradual opening up of economies and vaccination programs 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 shortage, and railroad companies, including CSX, likely benefited from this with higher intermodal revenues. Looking back at Q4 2020, revenues declined 2% to $2.8 Bil, with growth in intermodal revenues being more than offset by lower coal freight revenue. Our dashboard on CSX Corporation’s Revenues offers more details on the company’s segments.

2) EPS likely to be slightly above the consensus estimates

CSX’s Q1 2021 earnings per share is expected to be $0.98 per Trefis analysis, slightly above the consensus estimate of $0.96. CSX’s net income of $760 million in Q4 2020 reflected a 1.4% drop from its $771 million figure in the prior-year quarter. This can be attributed to lower revenues, while operating ratio actually declined to 57% vs. 60% in the prior year quarter. We expect this trend to continue with margin expansion, portending well for the overall earnings growth in Q1. For the full-year 2021, we expect the EPS to be $4.36 compared to $3.59 in 2020.

(3) Stock price estimate 11% lower than the current market price

Going by our CSX’s Valuation, with an EPS estimate of around $4.36 and a P/E multiple of around 20x in 2021, this translates into a price of $87, which is 11% below the current market price of around $98. At the current price of $98, CSX is trading at 22x its 2021 earnings estimate of $4.36 per share, which compares with levels of 17x and below seen in 2018 and 2019.

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 sequential growth, driven by the resumption of economic activities and increased demand for transportation, amid driver shortage in the trucking industry.

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 be fully valued, 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.

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