How CSX’s Valuation Stacks Up with Peers



Valuation metrics

The forward PE (price-to-earnings) ratio represents the current price an investor pays for one dollar of future earnings per share. Forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) is a good measure to value the capital intensive and high debt-loaded railroad (XLI) companies. This multiple is capital-structure-neutral and adjusted for excess cash.

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Forward EV-to-EBITDA multiple

The above graph shows that Canadian railroads have a higher EV-to-EBITDA multiple compared with the US-originated railroads. The primary reason for this is the higher operating margins of railroads such as Canadian National Railway (CNI) and Canadian Pacific Railway (CP).

With operations spread across the US and Canada, UK/Europe, and parts of Australia, Genesee & Wyoming (GWR) has the lowest operating margin among the major railroads. As a result, its EV-to-EBITDA multiple of 11x is the lowest among all the major railroads. CSX (CSX) and Norfolk Southern (NSC) have forward EV-to-EBITDA multiples of 12.83x and 11.89x, respectively.

Forward PE ratio

On a forward PE basis, Genesee & Wyoming has the highest multiple of 22.8x among peers. Analysts expect GWR’s acquisition synergies to drive its future earnings growth. It is followed by Canadian National Railway with a ratio of 21.1x. On a forward PE basis, Market Realist feels CNI is a bit overvalued. CSX comes in third with a forward PE of 20.8x. Kansas City Southern (KSU) has the lowest PE multiple of 19.3x.


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