Leading rail-based freight transportation service provider CSX Corporation (CSX) delivered solid earnings growth in the fiscal 2022 third quarter. The company reported an operating income of $1.58 billion, compared to $1.44 billion in the prior-year period. Its net earnings and earnings per share came in at $1.11 billion and $0.52, up 14.7% and 20.9% year-over-year, respectively.

“CSX has great potential for profitable growth over the long-term, and my key objective is to help ensure that we realize this opportunity while building a robust organization that will help drive additional value for our customers, our employees, and our shareholders,” said Joe Hinrichs, CSX’s President and CEO.

CSX’s financial strength enabled the company to increase its dividend for the 17th consecutive year. On October 6, the company’s Board of Directors approved a $0.10 per share quarterly dividend, payable on December 15, 2022. It pays a $0.40 per share dividend annually, which translates to a 1.35% yield on the current share price. Its four-year dividend yield is 1.25%.

The company’s dividend payouts have grown at a CAGR of 7.9% over the past three years and 9.2% over the past five years.

Shares of CSX have gained nearly 11% over the past month to close the last trading session at $29.96.

Here is what could influence CSX’s performance in the upcoming months:

Recent Positive Development

In June, CSX acquired Pan Am Railways, Inc. (Pan Am), expanding its reach into the growing Northeast region of the United States. “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,” said CSX’s Former President and CEO, James M. Foote.

Robust Financials

For the fiscal 2022 third quarter ended September 30, 2022, CSX’s revenue increased 18.3% year-over-year to $3.90 billion. The company’s operating income grew 10% from the prior-year period to $1.58 billion. Its net earnings came in at $1.11 billion, up 14.8% year-over-year.

Furthermore, the company’s net earnings per common share increased 20.9% from the year-ago value to $0.52. As of September 30, 2022, its total current assets came in at $4.31 billion, compared to $3.87 billion as of December 31, 2021.

Favorable Analyst Estimates

Analysts expect CSX’s revenue for the fiscal 2022 fourth quarter (ending December 31) to come in at $3.77 billion, indicating an increase of 10.1% from the prior-year period. The company’s EPS for the ongoing quarter increased 14.5% year-over-year to $0.48. Moreover, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

Furthermore, the company’s revenue and EPS for the current fiscal year are expected to grow 19% and 21.9% year-over-year to $14.90 billion and $1.90, respectively.

High Profitability

CSX’s trailing-12-month gross profit margin of 49.99% is 70.4% higher than the 29.33% industry average. Its trailing-12-month EBITDA margin of 49.99% is 283.9% higher than the 13.02% industry average. Likewise, the stock’s trailing-12-month net income margin of 28.05% is 312.6% higher than the industry average of 6.80%.

Furthermore, CSX’s trailing-12-month levered FCF margin of 19.56% is 480.2% higher than the industry average of 3.37%. Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 31.34%, 11.90%, and 9.66% compare to the industry averages of 14.35%, 7.01%, and 5.32%, respectively.

POWR Ratings Show Promise

CSX has an overall rating of B, translating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct 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 Sentiment, consistent with its favorable revenue and earnings estimates. Also, it has a Quality grade of B, in sync with its higher-than-industry profitability metrics.

CSX is ranked #6 out of 16 stocks in the B-rated Railroads industry.

Beyond what I have stated above, we have also given CSX grades for Value, Growth, Momentum, and Stability. Get access to all CSX ratings here.

Bottom Line

Premier transportation company CSX’s revenue and EPS have grown at 6.1% and 10.4% CAGRs over the past three years. Furthermore, the company seems well-positioned to benefit from sustained freight demand and its strategic acquisitions. The stock is currently trading above its 50-day moving average of $29.12, indicating an uptrend.

Moreover, Wall Street analysts expect the stock to hit $32.20 in the next 12 months, indicating a potential upside of 7.5%. Given its strong fundamentals, favorable analyst estimates, attractive dividend, and high profitability, it could be wise to invest in this stock now.

How Does CSX Corporation (CSX) Stack up Against Its Peers?

CSX has an overall POWR Rating of B. One could also check out these other stocks within the Railroads industry with an A (Strong Buy) or B (Buy) rating: ComfortDelGro Corporation Limited (CDGLY), Canadian National Railway Co. (CNI), and Wabtec (WAB).

CSX shares were unchanged in premarket trading Tuesday. Year-to-date, CSX has declined -19.58%, versus a -19.08% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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