CSX Corporation’s CSX efforts to reward its shareholders through dividends and buybacks are encouraging. However, high debt levels and coal market woes are major concerns.

Factors Favoring CSX

As a reflection of its shareholder-friendly stance, in 2022, 2023 and 2024, CSX paid dividends of $852 million, $882 million and $930 million, respectively. With a quarterly dividend of 13 cents per share (annualized to 52 cents per share), CSX's dividend yield is currently 1.75%. Dividend-paying stocks like CSX are generally safe bets for creating wealth, as these payouts act as a hedge against economic uncertainty, which characterizes current times. CSX is also active on the buyback front. It repurchased shares worth $4.73 billion in 2022, $3.48 billion in 2023 and $2.24 billion in 2024.

The company's focus on enhancing workplace safety for its employees is commendable. As a reflection of this, the Federal Railroad Administration or FRA Personal Injury Frequency Index, a measure of the number of FRA-reportable injuries per 200,000 man-hours, improved to 0.89 in 2023 from 1.01 in 2022. The FRA train accident rate improved to 3.32 in 2023 from 3.37 in 2022. Highlighting its focus on safety, CSX intends to launch a new safety training program for operations leaders in the current year.

Key Risks for CSX

Rail network issues due to headwinds like locomotive or crew/labor shortages and other service disruptions represent a major challenge for CSX. Network issues or supply-chain constraints are likely to adversely impact service levels, in turn hurting operating efficiency or volume of shipments. With labor costs being high (up 4% in 2024), operating expenses are elevated, in turn hurting the bottom line.

CSX’s significant capital expenditures indicate high debt levels, with total net capital expenditures expected to be $2.5 billion for 2025. Additionally, higher interest expenses primarily due to long-term debt issuances are partially offsetting earnings growth, which could impact profitability and financial stability in the long term. As a matter of fact, the company’s times interest earned ratio of 6.5 compares unfavorably with the industry’s ratio of 7. At the end of 2024, CSX had long-term debt of $17.9 billion, with a long-term debt-to-capitalization of 59%.

Coal market weakness is a major headwind for CSX.  The weak coal market has resulted in below-par coal revenues. Coal revenues fell 10% year over year to $2.24 billion in 2024. Coal volumes decreased 3%. For 2025, CSX expects coal volumes to be lower due to facility shutdowns and mine production issues. 

Due to the headwinds, CSX shares have lost 16.8% over the past six months, underperforming the Zacks Transportation-Rail industry’s 5.8% decline.

Image Source: Zacks Investment Research

CSX’s Zacks Rank

CSX currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors interested in the Zacks Transportation sector may also consider SkyWest SKYW and Frontier Group ULCC.

SkyWest

SkyWest currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SKYW has an expected earnings growth rate of 16% for the current year. The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average beat of 16.7%. Shares of SKYW have risen 22.1% over the past year.

Frontier Group

Frontier Group, too, has a Zacks Rank of 2 at present. ULCC has an expected earnings growth rate of more than 300% for the current year.

The company has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once. The average surprise is 1.1%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

CSX Corporation (CSX) : Free Stock Analysis Report

SkyWest, Inc. (SKYW) : Free Stock Analysis Report

Frontier Group Holdings, Inc. (ULCC) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research