CSX is speedily improving
Two measures of the efficiency of a railroad are, the company’s dwell hours (how long cars sit idle), and their train velocity (how fast the trains move on average). Unfortunately, we don’t have Norfolk Southern to compare to because the company doesn’t normally report these numbers. However, between Union Pacific and CSX, this race is getting close.
On the one hand, Union Pacific’s train speed is still much better at 26.4 miles per hour versus 23.4 mph at CSX Corporation (NYSE:CSX). However, CSX’s train velocity increased from 22.3 mph last year to 23.4 mph this year, while Union Pacific’s train velocity stayed the same. This improved train speed is the third reason to consider CSX stock. Faster moving trains means the goods get to their destination more quickly. Higher efficiency is a hallmark of train service and a selling point for the railroad.
A fourth reason to look at CSX is the company’s industry-leading dwell hours. Union Pacific Corporation (NYSE:UNP) reported dwell hours over 27, and CSX reported dwell hours decreased from 24 to 22.2. In short, CSX’s cars are sitting around less. Given the company is moving its trains faster, the improvement in dwell hours means CSX is more closely matching car supply to demand.
It’s a close race
One way that CSX Corporation (NYSE:CSX) wins against its rivals is the stock is a relatively better value. Since all three major railroads pay dividends and have different growth rates, using a PEG ratio isn’t enough. I prefer to use the PEG+Y ratio, which compares each company’s yield plus growth rate versus their P/E ratio. With this measure, the higher the number the better.
CSX’s yield of 2.54% is just slightly less than Norfolk Southern at 2.69%. However, CSX is expected to grow earnings faster at 11.63% versus 10.69% at Norfolk Southern. Since both companies have similar forward P/E ratios, CSX scores a PEG+Y of 1.07 compared to a 1.0 at Norfolk Southern. While Union Pacific Corporation (NYSE:UNP) pays a lower yield, and is growing faster, the shares also reflect this with a higher P/E ratio. Primarily due to the company’s higher P/E ratio, Union Pacific has a PEG+Y of 1.03.
As you can see, CSX stock is relatively the best value. The company is seeing improvements in operating margin, train speed, dwell hours, and coal volumes. It’s still tough to beat Union Pacific’s performance, but CSX Corporation (NYSE:CSX) is closing this gap. If the company continues improving, we may crown a new king of the rails.
The article 5 Ways This Company Is Getting Back on Track originally appeared on Fool.com and is written by Chad Henage.
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