CSX Corporation (CSX): Surging Profits at This Company Bode Well for Investors

However, Canadian National Railway (USA) (NYSE:CNI) is one of the most profitable railroads in the industry, and matching its record over the long run seems like a large assumption to make for CSX Corporation (NYSE:CSX). But Union Pacific Corporation (NYSE:UNP)’s pre-tax return on tangible invested assets has wavered between 11% and 15% over the last few years, reflecting the strong increase in freight volumes experienced throughout the industry. While certainly not the best railroad, CSX’s improvements have placed it among the best. If the srongest railroads are besting 11% returns on assets, CSX can likely accomplish the same.

Bottom line

If CSX Corporation (NYSE:CSX) can earn $3 billion or more before taxes, the stock is cheap. However, it is important to remember that railroads’ profitability has increased over the last few years due to a recovering North American economy combined with elevated gasoline prices. Although both trends seem likely to persist in the intermediate term, a reversal of these trends would harm all railroads’ earning power.

Nonetheless, it is difficult to find a company trading at less than nine times pre-tax earnings in this rising market, so CSX represents an interesting investment opportunity.

Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends Canadian National Railway.

The article Surging Profits at This Company Bode Well for Investors originally appeared on Fool.com.

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