CSX Corp. (CSX) is trading near 52-week lows after releasing earnings Tuesday. The company reported earnings per share of $0.48 vs. analyst estimates of $0.46, which represented the company's eighth consecutive quarter of meeting or beating earnings. The company also reported EPS for 2015 of $2.00 were $0.07, or nearly 4% higher than 2014.
Despite all this, the stock is down over 30% from a year ago and trading under 12x its newly released 2015 earnings. So what's the crux of the problem?
The company highlighted in its 2015 earnings report that low commodity prices and a strong U.S. dollar were among the culprits of a tough 2015 and expected to continue in 2016. From an operational standpoint, revenue continues to slide, declining 3.4% on a trailing 12-month basis. Year over year, revenue is down 13%, with no indication of stabilization.
Management will continue to combat lower revenues by focusing on cost cutting in 2016. So far, the company's return on equity has declined from just over 19% two years ago to 16.75% in the fourth quarter of 2015. Investors will likely not be comfortable with CSX until the ROE begins to stabilize. This could come in the form of cost efficiencies or revenue recovery, but will likely require some form of both.
Finally, the company provided general guidance of lower earnings for full-year 2016, down from analyst expectations of $2.05. This is what is likely causing anxiety in this morning's share price. As indicated by the forward earnings over time chart, analysts have scaled back on their earnings expectations from a quarter ago and will likely need to again in order for CSX to meet or beat expectations for a ninth straight quarter.
I believe that CSX is more likely to hit $20 per share (10x 2015 earnings) before any noticeable increase. At $20, I would re-evaluate the company's investment opportunity as the market would have time to digest the lower guidance and the company would have a dividend yield approaching 3.5%. Until then, CSX holders will have to navigate the volatile waters with energy investors.
Data sourced by internally managed spreadsheets. Additional CSX dashboard graphs are available here.