Here's Why Investors Should Hold on to CSX Stock for Now
CSX Corporation's CSX efforts to reward its shareholders are promising, buoyed by positive coal revenues and improved liquidity, indicating further positive momentum. However, CSX is grappling with difficulties in its intermodal operations and burdensome operating costs, posing significant obstacles to its success.
Factors Favoring CSX
Higher export coal volumes, domestic intermodal shipments and growth in other segments, along with pricing gains, are boosting CSX's top line. Export coal strength drove a 3% volume increase in 2023. High export coal prices and fuel surcharge revenues will further bolster revenues in the near term.
CSX's dedication to rewarding shareholders is evident in its increased dividends and substantial buyback programs, reflecting a strong commitment to shareholder value. To this end, CSX increased its quarterly dividend by 9.1% in February 2024.
CSX maintains a robust financial position, with cash and cash equivalents of $1,436 million, exceeding its current debt of $559 million at the end of the fourth quarter of 2023. Moreover, CSX’s current ratio at the end of the fourth quarter of 2023 was 1.05, surpassing the desirable threshold of 1. This further underscores the company's strong liquidity position.
Key Risks
CSX faces operational setbacks from supply-chain disruptions, including labor and equipment shortages, impacting its merchandise segment due to semiconductor shortages. As a result, Intermodal revenues dropped by 4% in 2023. High costs, including labor, fringe expenses, purchased services and fuel, are squeezing CSX's profits.
CSX's elevated capital expenditures could hinder its bottom line. In 2021, expenditures were $1.79 billion, surpassing 2020's $1.63 billion. In 2022, expenses rose to $2.1 billion. Projections for 2024 suggest that capex may reach around $2.5 billion, potentially impacting free cash flow generation.
Zacks Rank
CSX currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include GATX Corporation GATX and SkyWest SKYW.
GATX currently carries a Zacks Rank #2 (Buy) and has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the past four quarters (missing the mark in the remaining one). The average beat is 16.47%.
The Zacks Consensus Estimate for 2024 earnings has been revised 9% upward over the past 90 days. GATX has an expected earnings growth rate of 6.5% for 2024. Shares of GATX have risen 28.7% in the past year.
SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 26.3% over the past 90 days. Shares of SkyWest have surged 267.8% in the past year. SKYW currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The company has an expected earnings growth rate of more than 100% for 2024. SKYW delivered a trailing four-quarter earnings surprise of 128.02%, on average.
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