CSX Corp’s management is having a tough time dealing with soft demand and increasing debt. As if that wasn’t enough, the company is also under the scanner for accounting issues. These factors continue to weigh down on the stock, which has been trading flat since May this year.
CSX Corp is a leading American Holding company specializing in rail transportation through its subsidiary CSX Transportation. The company is unique due to its extensive rail network, which includes 21,000 route miles across 26 states of the eastern United States, and the Canadian provinces of Ontario and Quebec, allowing it to provide efficient freight transportation services. It was incorporated in 1978, is headquartered in Jacksonville, Florida, and has more than 23,000 full-time employees.
The company owns and leases approximately 3,500 locomotives to offer three main services: rail-based freight transportation for bulk commodities and intermodal containers, intermodal transportation services, through a network of approximately 30 terminals to combine rail and truck transportation, and rail-to-truck transfers.
Merchandise transportation, including automotive, agricultural products, and chemicals, accounts for 55% of the company’s total revenue. Intermodal services contribute around 25% while coal transportation represents approximately 20% of total revenue.
CSX’s end market consists of businesses looking for efficient transportation of goods across the eastern United States. Businesses that utilize CSX’s services come from sectors such as automotive, agriculture, construction, and energy. The company’s top clients include manufacturers, industrial producers, agricultural companies, and energy producers.
Even though it looks like a good business on the surface, its recent troubles make it unattractive for investment. The company’s performance this year is on track to be weaker than last year. Moreover, it has doubled its long-term debt in the last 10 years from $9.35 billion to $18.5 billion.
This in itself wouldn’t be that bad. However, the company’s stock buybacks worth $24.4 billion in the same time period raise questions about the management’s ability to keep the balance sheet healthy.
Just two weeks ago, the company also came under fire from the SEC for its accounting practices. It has already acknowledged that some accounting errors led to services understatement while overstating properties. This was corrected in time, but the SEC investigation will continue to exert downward pressure on the stock price.
Considering these risks, the stock’s valuation seems to be a bit excessive, with the growth prospects slightly overestimated. This makes the stock unattractive for investment at current rates.
CSX Corporation is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 65 hedge fund portfolios held CSX at the end of the second quarter which was 70 in the previous quarter. While we acknowledge the shortcomings of CSX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as the big tech stocks but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
