CSX Corporation (CSX, Financial) is in the news recently due to rumours of Bill Ackman acquiring a sizable stake in the company. The company's stock has seen unusual stock price movements and options activity of late. UBS analyst pointed out that recent volume trend and stock performance of CSX is similar to that of Canadian Pacific (CP) during September and October 2011 when Pershing Square was buying its stock. I believe CSX's stock offers a good value at current levels. Here's a look at the company in detail.
CSX Corporation is one of the nation's leading transportation companies. The company provides rail-based transportation services including traditional rail service and the transport of intermodal containers and trailers. The company’s annual average number of employees was approximately 32,000 in 2014, which includes approximately 26,000 union employees. Most of the company’s employees provide or support transportation services.
CSX’s principal operating subsidiary, CSX Transportation, Inc., provides an important link to the transportation supply chain through its approximately 21,000 route mile rail network, which serves major population centers in 23 states east of the Mississippi River, the District of Columbia and the Canadian provinces of Ontario and Quebec. It has access to over 70 ocean, river and lake port terminals along the Atlantic and Gulf Coasts, the Mississippi River, the Great Lakes and the St. Lawrence Seaway. The Company’s intermodal business links customers to railroads via trucks and terminals.
During 2014, the company services generated $12.7 billion of revenue and served three primary lines of business:
- The merchandise business shipped over 2.9 million carloads and generated approximately 60% of revenue and 42% of volume in 2014. The company’s merchandise business is the most diverse and transports aggregates (which include crushed stone, sand and gravel), metal, phosphate, fertilizer, food, consumer (manufactured goods and appliances), agricultural, automotive, paper and chemical products.
- The coal business shipped nearly 1.3 million carloads and accounted for nearly 22% of revenue and 18% of volume in 2014. The Company transports domestic coal, coke and iron ore to electricity-generating power plants, steel manufacturers and industrial plants as well as export coal to deep-water port facilities. Almost half of export coal and nearly all of the domestic coal that the Company transports is used for generating electricity.
- The intermodal business accounted for approximately 14% of revenue and 40% of volume in 2014. The intermodal line of business combines the superior economics of rail transportation with the short-haul flexibility of trucks and offers a competitive cost advantage over long-haul trucking. Through a network of more than 50 terminals, the intermodal business serves all major markets east of the Mississippi and transports mainly manufactured consumer goods in containers, providing customers with truck-like service for longer shipments.
CSX Corporation has seen a good growth in its revenues and profitability over the last five years. In the last five years, the company’s revenues have risen by ~ 20% while its EPS has grown by more than 42% to $1.92 in FY2014. The company has also done a good job in terms of returning cash to the shareholders through dividends and buybacks. The company has increased its annual dividend to $0.63 in FY2014 versus $0.33 in FY2010. The company has also reduced its share count by over ~150 million since FY2010.
Going forward, analysts are expecting the company’s EPS to further increase to $2.07 in the current year and $2.30 next year. Its revenues are expected to decline 1.20% in the current year and grow 4.70% next year.
CSX Corporation is trading at a forward PE of 16.31 and has a dividend yield of 1.90%. According to GuruFocus’ DCF Calculator, the company has a business predictability rating of 4.5 stars and a margin of safety of 22%.
Out of 28 analysts covering the company, 11 have buy or strong buy ratings while seventeen have hold ratings. I believe the stock is a good buy at current levels given attractive valuations, good growth prospects and history of returning cash to the shareholders through dividends and buy backs.
