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Price: $50.48
Discount category: Far above intrinsic value
Next earnings: 2027-01-21
Next earnings is estimate: Yes
Company name: CSX
Sector: Railroads
About: CSX operates a freight railroad in the eastern United States. Its network connects every major city in the eastern half of the country, about 250 short-line railroads and more than 70 ocean, river and lake ports. It moves three main types of freight: merchandise (chemicals, grain, metals, cars, forest products and fertilizers), intermodal containers and coal. It also owns a trucking business, Quality Carriers. In Q3 2026, revenue was $4.02 billion: merchandise was $2.45 billion, intermodal $634 million, coal $537 million and trucking $227 million. CSX had about 21,900 employees at September 30, 2026. Its head office is in Jacksonville, Florida, and Steve Angel is its president and chief executive officer.
Thesis: CSX trades at a premium because investors pay for a fast recovery in margins under chief executive Steve Angel, who took over in late 2025. In 2026, CSX cut costs and headcount, and it moved more freight. Its operating margin rose to 39.1% in Q3 2026 from an adjusted 34.9% a year earlier. Free cash flow for the first nine months of 2026 was $2.65 billion, more than double the $1.07 billion of 2025, because capital spending fell after the Blue Ridge rebuild. Investors also pay for steady buybacks and for the position of CSX as one of two large railroads in the East. For the premium to be earned, three things must be true. The operating margin must keep rising in 2027, and the company said that 2027 productivity gains can be smaller than in 2026. Volume must keep growing, as the 5% growth of Q3 2026 did, while service measures such as dwell and trip plan performance recover from their Q3 2026 decline. Free cash flow must stay high with capital spending below $2.4 billion. The premium can shrink if freight demand weakens, if service problems return, or if the Union Pacific and Norfolk Southern merger takes freight from CSX. The Q4 2026 report, expected in late January 2027, with the first 2027 outlook, is the next test. The merger review at the Surface Transportation Board runs through 2027.
Risks: Union Pacific and Norfolk Southern plan to merge into one railroad that goes from coast to coast. CSX opposes the merger, because it says that it reduces choices for shippers. If the Surface Transportation Board approves it, the new railroad can take long-distance freight from CSX. Press reports of the board's schedule say that a decision is not expected before the second half of 2027. Service measures became worse in Q3 2026. Dwell rose 12% and carload trip plan performance fell 12% compared with a year earlier. If service does not recover, customers can move freight to trucks and costs can rise. Freight volume depends on industrial production, trade and coal markets. Fertilizer volume fell 13% in Q3 2026. A weaker economy or lower export coal prices can cut volume and revenue. Fuel costs rose $170 million in Q3 2026 because locomotive fuel prices rose 67%. Fuel surcharges recover most of this cost, but with a delay of about two months. A fast rise in fuel prices lowers profit for some time. The company has a new leadership team. The chief executive took over in late 2025, and the chief operating officer left in October 2026. More changes can slow the plan to improve productivity.
Balance sheet: Cash: $1.6B Debt: $18.8B Net debt: $17.2B Interest cover: 7.0× Undrawn credit line: $1.2B, to February 2028 Debt due within 12 months: $1.7B CSX funds itself mainly with long-term unsecured notes. Long-term debt, with current maturities, had a carrying value of $18.80 billion at September 30, 2026, and $1.70 billion of it is due within one year. Cash and cash equivalents were $1.22 billion and short-term investments were $382 million. Interest cover is operating income divided by interest expense for the first nine months of 2026 ($4.33 billion against $631 million). CSX did not issue new debt in the first nine months of 2026. A $1.2 billion unsecured revolving credit facility runs to February 2028 and had no borrowings at September 30, 2026. A $1.0 billion commercial paper program also had no borrowings. Free cash flow before dividends was $2.65 billion in the first nine months of 2026. In the same period CSX paid $779 million of dividends and $1.06 billion for buybacks. Buyback authority of $5.2 billion was left at September 30, 2026. There were 1,843,398,210 shares outstanding on September 30, 2026. As of 2026-09-30.
Checkpoints: Oct 21, 2026: Q3 2026 results: margin and volume. Passed. Watch: A higher operating margin than a year earlier and volume growth pass; a lower margin or falling volume fail. Outcome: The operating margin rose to 39.1% from an adjusted 34.9%, volume rose 5% and EPS rose to $0.57. Jan 21, 2027 (estimate): Q4 2026 results and 2027 outlook. Pending. Watch: More than 350 basis points of Q4 margin growth, better service measures and a 2027 outlook for higher margins pass; a weaker margin or lower volume fail. 2027 (estimate): Union Pacific and Norfolk Southern merger review. Pending. Watch: A rejection of the merger, or approval with conditions that protect competition in the East, passes; approval with no such conditions fails.
Recent events: 2026-10-21: CSX reported Q3 2026 results. Revenue rose 12% to a record $4.02 billion, and total volume rose 5%. Operating income rose 44% to $1.57 billion, or 25% compared with adjusted results a year earlier, and the operating margin was 39.1%. EPS was $0.57, up from $0.37, or from an adjusted $0.44. Free cash flow for the first nine months was $2.65 billion. CSX bought back 11 million shares for $543 million in the quarter. A press report of the call said that the company raised its 2026 revenue growth outlook to the high single digits and kept its outlook for more than 350 basis points of margin growth and capital spending below $2.4 billion. 2026-10-12: CSX said that chief operating officer Mike Cory will retire. He left the role on October 12, 2026, and helps with the change until May 8, 2027. The heads of operations and of network operations now report directly to Steve Angel. 2026-07-22: CSX reported Q2 2026 results. Revenue rose 10% to a record $3.94 billion, and volume rose 6%, with intermodal up 9%. Operating income rose 17% to $1.51 billion, and the operating margin was 38.3%. EPS rose 23% to $0.54. 2026-05-14: CSX said that its Board approved $5 billion of new share buyback authority on May 12, 2026, in addition to about $989 million left under the old program. Stephen Fortune, chief digital and technology officer, left the company on May 14, 2026. 2026-04-22: CSX reported Q1 2026 results. Revenue rose 2% to $3.48 billion, and volume rose 3%. Operating income rose to $1.25 billion from $1.04 billion, and EPS rose to $0.43 from $0.34. 2026-01-22: CSX reported Q4 2025 results. Revenue fell 1% to $3.51 billion, and EPS was $0.39, which included $0.02 of severance and technology costs. For 2025, revenue was $14.09 billion and adjusted EPS was $1.61. A press report said that the company withdrew its 2025 to 2027 investor day targets and gave a 2026 outlook for low single-digit revenue growth and 200 to 300 basis points of margin growth.