CSX (CSX): Buy, Sell, or Hold Post Q1 Earnings?

Since December 2024, CSX has been in a holding pattern, posting a small loss of 3.1% while floating around $32.64.

Is there a buying opportunity in CSX, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think CSX Will Underperform?

We're swiping left on CSX for now. Here are three reasons why there are better opportunities than CSX and a stock we'd rather own.

1. Sales Volumes Stall, Demand Waning

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Rail Transportation company because there’s a ceiling to what customers will pay.

Over the last two years, CSX failed to grow its units sold, which came in at 1.52 million in the latest quarter. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests CSX might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. EPS Barely Growing

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

CSX’s unimpressive 4.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

3. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, CSX’s margin dropped by 15.6 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. CSX’s free cash flow margin for the trailing 12 months was 19.5%.

Final Judgment

We see the value of companies helping their customers, but in the case of CSX, we’re out. That said, the stock currently trades at 17.7× forward P/E (or $32.64 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.

Stocks We Would Buy Instead of CSX

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