CSX: Wide Moat, Solid Earnings, But Wait for a Pullback

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On Tuesday afternoon, CSX (NYSE:CSX) reported its second-quarter earnings results. The company was pleased to report that its quarterly revenues rose 7 percent to $3.2 billion and that its earnings grew slightly, to $529 million. Earnings per share grew 2 cents from 51 cents per share to 53 cents per share. The stock was largely flat after hours, although we should keep in mind that it hit an all-time high during the early part of Tuesday’s trading session.

CSX has been a solid performer year to date with a gain of 8 percent, which is slightly better than the 7 percent gain we have seen in the S&P 500. The company also hiked its quarterly dividend earlier in the year from 15 cents per share to 16 cents per share, giving it a 2 percent yield versus the S&P 500, which yields about 1.8 percent. These aren’t phenomenal numbers, but CSX is delivering what investors expect from railroads: strong, consistent cash flow.

But should you buy the stock now?

While I am a shareholder, I don’t think the current price is a good entry point. This is a stock that investors should buy on weakness, and investors were given that opportunity earlier in the year, when the company reported weak fourth-quarter numbers due to low coal shipments. While investors were panic selling the stock down to $26 per share, wise investors who saw the company’s solid future potential were picking up shares.

Now the stock trades 20 percent higher at well over 17 times earnings, and while this is below the S&P 500’s 22.6 earnings multiple, it seems that investors have become optimistic again, and while I agree with this optimism, it doesn’t make for a good buying opportunity.

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