tOn Monday, CFRA upgraded CSX Corporation (NASDAQ:CSX) stock from Hold to Buy, adjusting the price target upward to $38.00, an increase from the previous $38.00. The revision reflects a positive shift in the firm's outlook on coal demand, influenced by the policies of the Trump administration.
The stock, currently trading at $31.89 and near its 52-week low of $31.43, appears undervalued according to InvestingPro analysis, with investors anticipating the company's upcoming earnings report on January 23.
The research firm maintained its 2024 earnings per share (EPS) estimate for CSX at $1.85 but increased the 2025 EPS forecast by one cent to $2.02, and introduced a 2026 EPS estimate of $2.22. The new 12-month price target is based on a forward price-to-earnings (P/E) ratio of 19 times the 2025 EPS estimate.
This valuation represents a premium to the five-year average P/E ratio of 17 times, justified by anticipated favorable sales and margin growth. The company maintains impressive gross profit margins of 49%, and has demonstrated strong shareholder returns with 20 consecutive years of dividend increases. InvestingPro subscribers can access 10+ additional key insights about CSX's valuation and growth prospects.
CFRA's revised outlook is largely driven by the Trump administration's support for traditional energy sectors and a campaign promise to encourage a fracking boom with the slogan "Drill, baby, drill." This contrasts with the previous Biden administration's focus on clean energy initiatives. CSX's coal business, which made up 12% of volumes and 17% of sales in 2023, is considered significant enough to impact the company's bottom-line growth positively.
In addition to the coal sector's prospects, CFRA commends CSX's financial health, highlighting its manageable debt levels with a net debt-to-EBITDA ratio of 2.4 times, compared to the industry average of 4.6 times. CSX also boasts a current ratio of 1.4 times, surpassing the industry average of 1.1 times, indicating the company's solid balance sheet and potential for financial stability.
In other recent news, CSX Corporation has been the subject of several analyst revisions. Jefferies upgraded CSX stock to Buy, citing anticipated growth in the transportation and logistics sector. On the other hand, Citi adjusted CSX's stock price target to $40.00 while maintaining a Buy rating, despite the company's challenges due to hurricane-related network repairs. RBC Capital Markets reduced its price target for CSX to $34, maintaining a Sector Perform rating, due to lower than expected volumes.
These revisions follow recent developments within CSX. The company has reached tentative labor agreements with the International Brotherhood of Electrical Workers and the National Conference of Firemen & Oilers, which include improvements in wages, healthcare benefits, and paid time off. In addition, CSX is seeking the Supreme Court's intervention to continue an antitrust case against Norfolk Southern Corp (NYSE:NSC).
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