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CSX Valuations Decline on Lower Expected Revenues in 2016

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Jan. 26 2016, Updated 7:22 a.m. ET

Higher valuations

CSX Corporation (CSX) reported 4Q15 earnings per share of $0.48, down 2% from the $0.49 EPS reported in the same period last year. The company saw improved operating efficiency. It’s focused on expanding operations, increasing coverage of commodities, and managing expenses in order to improve its margins and operations.

Historically, CSX stock has remained undervalued compared to its peers, mainly due to the pressure of declining shipments of coal. The spread of the company’s valuations has remained steady over the past few months.

Currently, CSX is valued at 11.9x on a one-year forward earnings basis. Its peers are trading at 14.3x. CSX stock was trading at 15.3x in January 2015 compared to its peers at 18.3x.

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Compared to benchmark

CSX’s current PE (price-to-earnings) ratio is 11.7x compared to the S&P 500’s 20.4x. Revenues in the upcoming quarters are expected to be negatively impacted by a decline in coal shipments.

CSX expects low commodity prices, a strong US dollar, and energy market transitions as major growth challenges in 2016. The company expects full-year EPS (earnings per share) to be lower than 2015 mainly due to negative global and industrial market trends. CSX will try to minimize the impact by focusing on efficiency, resources, and service quality and achieve a mid-60s operating ratio in the longer term.

Improved operating ratio, expense management, and a strong buyback program can help CSX stock achieve valuations on par with its peers.

  • Canadian Pacific Railway (CP): 21.2x
  • Genesee & Wyoming (GWR): 15.6x
  • Kansas City Southern (KSU): 21.6x
  • Canadian National Railway (CNI): 19.2x
  • Union Pacific (UNP): 16.1x
  • Norfolk Southern (NSC): 13.6x

Together, these companies form 14.9% of the VanEck Vectors Morningstar Wide Moat ETF (MOAT).

To know more about CSX, you can read CSX: A $35 Billion Transportation Company.

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