Will Analysts Continue Their Bullish Stand on CSX after Q3 2018?

Analyst recommendations for CSX

CSX (CSX) is covered by 25 analysts polled by Thomson Reuters. The railroad has a consensus rating of 2.15, indicating a “buy.” Seven analysts recommended a “strong buy” for CSX stock, and nine analysts recommended a “buy.” Eight analysts recommended a “hold,” and one analyst recommended a “sell” on CSX stock.

Will Analysts Continue Their Bullish Stand on CSX after Q3 2018?

Analysts’ price targets

Analysts have set a 12-month consensus target price of $81.43 on CSX stock. Based on its October 17 closing price of $70.71, this translates into a return potential of 15.2% over the next 52 weeks. In the last year, the railroad returned 31.0% to its investors. Below, we’ll look at the analysts’ price targets and return potential for CSX’s peer group.

  • Norfolk Southern (NSC): price target of $187.68 with a return potential of 11.0%
  • Union Pacific (UNP): price target of $169.08 with a return potential of 12.8%
  • Kansas City Southern (KSU): price target of $126.44 with a return potential of 21.6%
  • Canadian Pacific Railway (CP): price target of 305.54 Canadian dollars with a return potential of 13.8%
  • Canadian National Railway (CNI): price target of 110.80 Canadian dollars with a return potential of 8.7%
  • Genesee & Wyoming (GWR): price target of $89.43 with a return potential of 5.45%

Investors bullish on railroad stocks may consider investing in the iShares US Industrials ETF (IYJ). This ETF has ~6.7% exposure to key US railroad companies and 4.6% weight in major airline companies.

Why analysts are bullish on CSX

For the last four quarters, CSX has been able to beat Thomson Reuters–surveyed analysts’ earnings expectations. The most remarkable aspect of the railroad’s third-quarter results was its double-digit revenue growth—the company’s highest level in the last several quarters. The railroad also fulfilled the market’s expectations on the operating ratio front, which declined by a solid 970 basis points in the quarter.

CSX’s capital expenditure declined with the implementation of its Precision Scheduled Railroading model. Higher core earning and benefits from lower taxes resulted in 55.0% YoY growth in the railroad’s adjusted free cash flow in the first nine months of 2018.

The company completed more than $3.0 billion of the current $5.0 billion buyback authority. CSX expects to complete the program by the end of the first quarter of 2019.

However, its downside risk remains in the form of US–China trade tensions. The trade war can potentially slow the pace of the US economy’s growth in the coming quarters. In such an event, railroads such as CSX may experience some erosion in stock value.