We hosted an investor dinner with CSX in New York City. Near-term risks to costs remain, pricing outlook appears competitive while end markets remain mixed for the near term. Regulatory environment should ultimately be a tailwind for the group. Longer-term initiatives with a strong industrial development pipeline should provide long-term benefits for CSX. Price target intact, reiterate Hold.
Sentiment on near-term improvements felt somewhat limited, as a gradual service recovery will take time to play out. The Howard Street Tunnel and Blue Ridge Subdivision projects continue to be on track for a 4Q2-25 deadline, though impacts to the network are material (Howard Street affects ~10% of their trains, ~24 trains a day). Double-stack volume opportunity is a 2026 story. Pricing commentary suggests a very competitive marketplace with its closest peer leaning into new business to grow volumes. Forest products, which historically have been a leading indicator for the economy, are “flashing pink, not red” and remains something to be monitored.
Industrial end markets are mixed in what has been an elongated malaise, but CSX sees opportunities on the horizon, which we expect will support 2026. Auto onshoring is under way and CSX spoke to notable wins (that are starting to ramp up, emphasizing that the incremental volume opportunity is large given imported vehicles did not touch the rail network significantly. Longer-term industrial pipeline remains robust, even growing, though customers are increasingly cautious on putting pen to paper on final steps due to macro uncertainty. Regulatory tailwinds in the form of accelerated depreciation among others are expected to benefit CSX’s industrial end markets down the line. Infrastructure build in the Southeast and Chemicals franchise has been a bright spot. Near-term core demand remains pressured by uncertainty and elevated interest rates in our view, but pipeline conversion should support 2026.
CSX remains confident that an improved regulatory environment will support cost measures. While the nominee to lead the FRA (David Fink) indicated support for the two-person crew rule in recent confirmation hearings, CSX still sees considerable opportunity, particularly in reforming inspection rules which tie up a significant number of resources. Technological advancements are expected to receive fresh support.
CSX should have some idiosyncratic cost opportunities, including sales force realignments (incentives), adopting and testing new technology tools (AI products showing promise for a large amount of marketing-type efficiencies), and tightening employee accountability agreements. Management also called out some internal operations products that could lead to greater network efficiencies.
We keep our estimates intact as we continue to follow the uncertainty in the macroeconomic outlook. Price target stays at $31 and CSX remains a Hold-rated stock that appears to have brighter days ahead starting in 2026.
Our Investment Thesis: CSX is a high-quality company with solid fundamentals that appears well positioned to benefit from long-term economic growth. However, we would remain on the sidelines due to less-than-compelling valuation. The shares may become attractive to patient, long-term investors.
Base Case Assumptions: Rail volume recovery picks up as inventory restocking resumes, and CSX maintains its ability to command solid pricing.
Upside Scenario: Global demand for U.S. coal picks up, and truckload capacity tightens, thereby allowing the rails to raise prices on their intermodal product. Service improvements pick up pace.
Forthcoming Catalysts: Long-term intermodal growth to be driven by the ongoing shift from the highway as well as the expansion of some of the company’s hubs. Potential longer-term benefits from the ongoing operational turnaround plan.
