CSX (NASDAQ:CSX) once again delivered impressive results for the second quarter. The stock has been impressive on the market over the last one year, gaining 28%. With the economy improving, CSX’s long-term prospects look promising. With better investment plans and changing trends in the market, CSX is confident of better performances in the future, which is a positive sign for the stock. Let us take a closer look at CSX's business and check if it is still a solid investment.
A solid quarter
CSX’s quarterly revenue rose 7% $3.2 billion. The company outpaced analysts’ expectations on both top and bottom lines. On the earnings front, CSX posted EPS of $0.53, which was more than $0.51 per share in the same period last year. CSX saw impressive growth in revenue, and this led it to deliver record operating income of nearly $1 billion and an operating ratio of 69.3%.
CSX has bright future. The company’s management is bullish about it on the back of many key points. It is seeing broad-based economic momentum across most markets. The transitioning energy markets are also emerging as a key growth driver for CSX.
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- CSX 15-Year Financial Data
- The intrinsic value of CSX
- Peter Lynch Chart of CSX
Better times in the future
The company’s confidence of delivering a better performance comes from economic indexes such as the Purchasing Managers Index, which indicates that the manufacturing economy is gaining steam. Also, the Customer's Inventories Index remained at 46.5, and this clearly indicates strength in demand for manufacturing output.
Moving forward, CSX is seeing strong demand for railroading. Many key areas such as vehicle production, housing starts, and agricultural output are indicating continued expansion. In addition, there are many other growth opportunities. In order to propel services and capture growth opportunities, CSX is adding front-line personnel and making significant investments in infrastructure and freight cars to efficiently grow its business. This will allow it to create a competitive advantage over peers.
Moreover, the company is also pleased with the economy showing positive signs. CSX is counting on growth trends in the intermodal and oil and gas markets. It is expecting these to help it improve its growth prospects. With aggressive investment strategies and advances toward the service product, CSX is in line to deliver double-digit earnings growth and margin expansion for its shareholders beginning 2015.
CSX has seen in the past that coal shipments have increased in harsh temperatures, as utilities in the North East had a smaller window to ship the coal over the Great Lakes. In the future, CSX is estimating an increase in coal volume. These are clear indicators that the rail service business will grow. CSX is also expecting a surge in demand for hauling coal and crude oil in the future.
CSX is excited about the prospect of new regulations calling for railroad tank cars hauling crude oil to be redesigned and strengthened. Federal regulators are expected to propose new rules for tank cars. The rules to safeguard the fierce rail accidents that also involve crude oil are inside the ambit of the Transportation Department. But, if regulations restrict the speed limit to just 30 mph, it might hurt CSX’s profit margins as it will not be able to deliver reliable freight services to customers.
However, CSX is expecting strong intermodal growth, which will continue to support its rail services going forward. Also, it is expecting a positive demand environment across the business.
With a trailing P/E of 17.48, CSX looks promising as its long-term prospects are strong as indicated by the positive economic conditions. Its forward P/E of 14.62 also indicates that its earnings are also going to improve in the future. CSX also has an impressive profit margin of 14.73%, which makes it a good investment option.