This Trucking Company Is Currently A Better Pick Over CSX Stock


We think that Old Dominion Freight Line stock (NASDAQ
NDAQ
: ODFL) is currently a better pick compared to CSX Corporation stock (NYSE: CSX
CSX

CSX
), despite it being the more expensive of the two, trading at 6.2x trailing revenues, compared to 5.6x for CSX. The gap in the valuation of these two companies can be attributed to Old Dominion Freight Line’s superior revenue growth and better financial position, as discussed below.

Looking at stock returns, CSX has marginally outperformed ODFL and the broader indices. CSX is down 9% YTD, ODFL is down 12%, and the S&P500 index has declined 10%. While both companies will likely see top-line expansion over the coming years, Old Dominion Freight Line is expected to outperform. There is more to the comparison, and in the sections below, we discuss why we believe ODFL stock will offer better returns than CSX stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of CSX vs. Old Dominion Freight Line: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Old Dominion Freight Line’s Revenue Growth Is Better

  • Both companies posted double-digit sales growth over the last twelve months. Still, Old Dominion Freight Line’s revenue growth of 24.8% is higher than 16.4% for CSX.
  • Looking at a longer time frame, CSX’s sales rose at an average growth rate of 1.5% to $12.5 billion in 2021, compared to $12.3 billion in 2018, while that of Old Dominion Freight Line’s sales rose at 10.1% to $5.3 billion in 2021, compared to around $4.0 billion in 2018.
  • CSX’s revenue growth was adversely impacted in 2020 due to the pandemic, but the recovery in 2021 was strong. While automotive shipments were adversely affected due to the semiconductor chip shortage affecting the overall production, the rise in natural gas prices boded well for coal demand, bolstering the coal freight revenue growth for CSX in 2021 and the first half of 2022.
  • Much of the growth over the recent quarters can be attributed to a robust pricing environment, while volume growth has been tepid for CSX.
  • However, there are near-term headwinds for the company. The demand for railroad business can primarily be linked to economic growth. The current high inflationary environment, rising interest rates, and recession fears have weighed on railroad stocks.
  • Barring 2020, Old Dominion Freight Line’s revenue has been steadily rising with increased demand for the trucking industry. Of late, it has benefited from a rise in volume driven by increased demand, available network capacity, and better pricing, including the impact of higher fuel surcharges.
  • The driver shortage is a well-known issue for the trucking industry, and it is unable to meet the rising demand. Note that 72% of the entire U.S. freight is moved on trucks. Overall, the demand for the trucking industry will likely remain on the higher side going forward, driving Old Dominion Freight Line’s revenue growth.
  • Our CSX Revenue and Old Dominion Freight Line Revenue dashboards provide more insight into the companies’ sales.
  • Looking forward, Old Dominion Freight Line’s revenue is expected to grow faster than CSX’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 9.2% for Old Dominion Freight Line, compared to a just 2.1% CAGR for CSX, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies that are negatively impacted by Covid and those that are not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. CSX Is More Profitable But Comes At A Higher Risk

  • CSX’s operating margin of 36.5% over the last twelve months is much better than 13.5% for Old Dominion Freight Line.
  • This compares with 35.4% and 19.9% figures seen in 2019, before the pandemic, respectively.
  • CSX’s free cash flow margin of 39.4% is also better than 22.9% for Old Dominion Freight Line.
  • Our CSX Corporation Operating Income and Old Dominion Freight Line Operating Income dashboards have more details.
  • Looking at financial risk, Old Dominion Freight Line is better placed than CSX. Its 0.5% debt as a percentage of equity is lower than 22.4% for CSX, while its 10.3% cash as a percentage of assets is higher than 7.4% for CSX, implying that Old Dominion Freight Line has a better debt position and it has more cash cushion.

3. The Net of It All

  • We see that Old Dominion Freight Line has demonstrated better revenue growth over CSX over the last twelve months and the last three years. It comes at a lower financial risk with a better debt position and more cash cushion. On the other hand, CSX is more profitable, and it is available at a relatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Old Dominion Freight Line is currently the better choice of the two, despite it being the more expensive of the two.
  • The table below summarizes our revenue and return expectation for both companies over the next three years and points to an expected return of 9% for Old Dominion Freight Line over this period vs. -5% expected return for CSX stock, implying that investors are better off buying ODFL over CSX, based on Trefis Machine Learning analysis – CSX vs. Old Dominion Freight Line – which also provides more details on how we arrive at these numbers.

While ODFL stock may outperform CSX, it is helpful to see how CSX’s Peers and Old Dominion Freight Line’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for CSX vs. Amerco.

With inflation rising and the Fed raising interest rates, among other factors, CSX stock has fallen 9% this year. Can it drop more? See how low CSX stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

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