The improving economy is acting as a tailwind for CSX (CSX, Financial). The company posted impressive results in the recently reported third quarter, reflecting good improvement in its revenue, earnings and net income. Management is seeing sustainable growth opportunities for the future. Besides these, the company is also seeing other bright opportunities that can drive its business further in the upcoming quarters. Let us have a look at the overall business and the opportunities that will drive CSX.
Quarterly performance and more
CSX’s quarterly revenue grew by 7% to $3.2 billion. This also outpaced analysts’ estimates of $3.15 billion. CSX also impressed everyone on the earnings front as well. The company’s EPS grew by 16% to $0.87 per share beating consensus estimates by $0.03 per share. On the other hand, its quarterly profit also rose by 12% on the back of good improvement in the shipping volume across all markets that it serves.
The company’s share also rose by 2% soon after it impressed the investors with good results. The company is now looking for strengthening its financial position and is focusing on various initiatives to improve its performance. It is now mainly focused on execution of its core strategy.
CSX is now focusing on enhancing its ability to grow faster than the economy, maintaining price above inflation. Further, CSX is also planning to make strategic investments in the operations to make it more efficient. This will be a attractive thing to the shareholders, helping them to gain much market share in future. Counting on these strategies, CSX is expecting to sustain double digit earnings growth and margin expansion in fiscal 2015.
The road ahead
Moving ahead, CSX is now focusing well on to its customers and is working aggressively on meeting their demand for near and long term. To facilitate this, the company is adding new crews and is continuously making investments in locomotives and infrastructure to increase its capacity. These efforts looks promising as CSX seeing good growth of the customers it serves. These are some of the key indicators that the company is right on track for its expansion strategy.
Its intermodal business is seeing good times which is evident by a good 6% increase in the revenue in the recently reported quarter. Seeing this, CSX is growing its international business by adding new service offerings, also making strategic investments to support this growth.
CSX is confident of better results in coming quarters. It is expecting better demand environment in the fourth quarter with more stable and favourable condition. The Chemical segment is well on track and is expected to capture more opportunities in the oil and gas industry. While in the metals, the company is seeing good growth in demand and is anticipating that this trend will continue in the future as well giving more opportunities in automotive and energy markets. In the coal segment as well the company is making efforts to rebuild inventories. With this CSX is expecting strong growth across domestic coal volume in the fourth quarter.
Another favorable fact for CSX which can further drive its growth momentum is that the crude shipments and the energy industry shipments are expected to increase in 2015 giving CSX more opportunities of business, adding meaningfully to its top line. This is just because of the recovering favourable U.S. economy. Further the Franc Sand deliveries are expected to grow. On the back of this CSX is expecting double digit market expansion in 2015.
Conclusion
Now moving on to the fundamentals, with a trailing P/E of 19.38 the stock looks reasonable and the forward P/E of 16.52 also shows good earnings growth in the near term for it. But in the long term in the next five years the stock might be disappointing as its earnings are growing at a CAGR of just 9.77% which is less than the industry average of 18.05%. But in the near term there are many points which indicate that CSX has got much steam. Its intermodal and metal business is showing positive signs and the company is counting on their growth to be profitable in future. So I would like to suggest the short term investors to definitely include CSX in their portfolio.
