Can CSX’s Stock Deliver Gains in 2013?

With shares of CSX Corp (NYSE:CSX) trading at around $20.99, is CSX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

trainC = Catalyst for the Stock’s Movement

CSX beat on the top and bottom line, which is a big reason why the stock is up over 3 percent so far today. Revenue came in at $2.90 billion versus an expectation of $2.85 billion. EPS came in at $0.43 versus an expectation of $0.39. However, revenue did drop slightly year-over-year. EPS remained steady. Sales dropped 2.3 percent year-over-year. Gross margins expanded, and operating margins and net margins dropped. For next quarter, revenue is expected to come in at $2.96 billion, and EPS is expected to come in at $0.42. Nothing out of the ordinary here.

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For the last quarter, CSX saw an increase in merchandise and intermodal shipments, but those increases were more than offset by declines in coal. For next quarter, CSX expects strength in intermodal, chemicals, forest products, and phosphate & fertilizer. CSX expects weakness in agricultural products, metals, export coal, and domestic coal.

Now let’s take a look at some important numbers for CSX prior to forming an opinion.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for CSX qualifies as normal for the industry, but it’s weaker than the debt-to-equity ratios for Union Pacific Corporation (NYSE:UNP) and Norfolk Southern Corp. (NYSE:NSC).

Debt-To-Equity

Cash

Long-Term Debt

CSX

1.00

$728.00 Million

$9.06 Billion

UNP

0.49

$1.13 Billion

$9.49 Billion

NSC

0.87

$708.00 Million

$8.48 Billion

 

T = Technicals on the Stock Chart Are Mixed

CSX has shown strong performance over a three-year time frame, but the past year has left a lot to be desired. Union Pacific has been the steadiest performer of this group.

1 Month

Year-To-Date

1 Year

3 Year

CSX

8.17%

9.38%

-3.01%

56.18%

UNP

6.37%

6.34%

21.02%

115.20%

NSC

6.99%

8.21%

-10.96%

45.43%

 

At $20.99, CSX is trading above its 50-day and 100-day SMA, and below its 200-day SMA.      

50-Day SMA

20.01

100-Day SMA

20.83

200-Day SMA

21.44

 

E = Earnings Have Been Improving

Earnings and revenue have been steadily improving since 2009.

2007

2008

2009

2010

2011

Revenue ($)in billions

10.03

11.26

9.04

10.64

11.74

Diluted EPS ($)

0.99

1.10

0.96

1.35

1.67

 

We already know what happened this quarter. Now let’s take a look at previous quarters.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

2.96

2.95

2.97

3.01

2.89

Diluted EPS ($)

0.43

0.43

0.43

0.49

0.44

 

T = Trends Might Support the Industry Right Now 

There are both positive and negative trends for the industry at the moment. The biggest negative is coal. Coal is suffering due to natural gas prices, high inventory, and low demand. On the other hand, aforementioned areas, such as intermodal, chemicals, forest products, as well as phosphate & fertilizer are positive trends.

Conclusion

Coal might be a negative, but CSX expects crude-by-rail traffic to increase in 2013, and for the slow recovery in housing and construction to continue. If these predictions are accurate, then the average price target of $24.58 for CSX can easily be met. The big scare is what happens in the broader economy. Another negative is that CSX’s stock has gone nowhere for two years, which was during a period of one of the biggest bull runs in history. There isn’t enough positive information to justify a significant rise in the stock price in the near future, especially considering it’s not likely for the market to repeat its impressive performance over the next two years.

CSX is a WAIT AND SEE.

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