With the U.S.-China trade war ravaging the railroad industry, it has been a tough year for holders of CSX (NASDAQ:CSX) stock. Watching the CSX stock price tumble from $80 to below $70 wasn’t exactly what I would call a pleasure trip.
A cringe-inducing earnings report from July didn’t exactly bring sunshine into the lives of CSX stock investors, either. However, optimism may be called for in the year’s final quarter as an October surprise seems to have kept CSX stock from going off the rails.
CSX Stock Falls Hard
Multiple sectors of the American economy have taken a direct hit from the ongoing trade dispute. In fact, in a research study conducted by Pablo Fajgelbaum, Pinelopi Goldberg, Patrick Kennedy and Amit Khandelwal, the authors concluded, “We find large impacts of the war on imports and exports. … These estimates imply an annual loss for the U.S. of $51 billion due to higher import prices.”
Suffice it to say that no American economic sector has been left unscathed, including the U.S. railroad industry. It’s likely that this impacted CSX’s second-quarter earnings results, which clearly disappointed the investing community.
Were the earnings results really that bad? Or did investors overreact? I’ll let you decide for yourself. In Q2 of 2019, CSX posted net earnings of $870 million, which translated to $1.08 per share. Granted, the reported revenues indicated a year-over-year decline of 1%, but the company’s year-over-year expenses declined by 3%. That sounds like a net gain to me.
CSX President and CEO James Foote didn’t seem to mind those results. He declares that they “reflect the strength of [CSX’s] operating model, and combined with continued improvements in our best-in-class customer service, represent significant progress toward our goal of being the best run railroad in North America.”
Fast Track to Profits?
Still, the sharp share-price drop for CSX stock seemed to create a buildup of nervous anticipation — or perhaps I should say dread — in the days before the company’s third-quarter earnings announcement. Thankfully, as it turns out, CSX stock holders had nothing to fear.
The analyst community was expecting CSX to post earnings of $1.01 per share, but the company easily topped that estimate with Q3 net earnings of $1.08 per share. Moreover, retrenchment efforts seem to have paid off for CSX in the third quarter. The company’s costs during that time frame declined by 8%
Investors breathed a collective sigh of relief at these posted results, and the company’s CEO was effusive with praise.
“I am extremely proud of our dedicated team of CSX railroaders for once again setting new records for operating efficiency, customer service, and safety this quarter. … These results reflect our continued commitment toward being the best run railroad in North America and providing our customers with best-in-class service.”
Don’t get me wrong. I understand that the trade war has put pressure on freight volumes and I’m not expecting CSX or the broader railroad industry to turn around immediately. However, trade wars don’t last forever. And if anything is due for a rebound, CSX stock would be near the top of the list.
My Takeaway for CSX Stock
The CSX stock price hovered near $80 for several consecutive months this year, and I expect the price to touch that level again at some point in the short to medium term. And if the third-quarter relief rally in CSX stock is any indication, the smart money is wagering that long-term investors won’t get railroaded again.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.