CSX Corporation

Efficient scale is CSX’s core advantage: it operates one of only two Class I rail networks in the Eastern U.S., where nearly two thirds of the U.S. population resides, with interchanges to more than 240 short lines and access to over 70 ports.

Recreating right-of-way, terminals, crew bases and regulatory permissions is effectively impractical, particularly at the density of the East. Network effects with short lines and ports add stickiness and system relevance. Rail’s structural cost and emissions advantages over trucking further reinforce the moat on long hauls.

Offsets include cyclical volumes in industrial end markets and secular coal decline. Regulatory actions like forced switching could erode pricing in pockets, though the 2024 reciprocal switching rule was vacated in 2025, reducing immediate risk.

Sub-scores: efficient scale very strong, network effects strong, cost advantage strong, switching costs moderate, intangibles modest.

CSX typically sustains pricing above rail inflation in merchandise and intermodal lanes due to limited substitution on long-haul corridors and service quality, while fuel surcharge mechanisms help recover diesel volatility.

In 2025, merchandise revenue per unit broadly rose modestly despite softer volumes, and management highlighted higher pricing in merchandise and intermodal even as coal pricing fell with benchmarks. This indicates healthy price discipline, albeit constrained by regulation and truck competition over shorter lengths of haul.

The primary check on pricing is oversight from the STB on reasonableness and potential pro-competitive measures.

Railroads are economic toll bridges but volumes remain tied to industrial production and commodity cycles.

CSX benefits from a balanced mix of merchandise, intermodal and coal, with intermodal providing secular conversion from highway and new cross-border lanes (SMX) adding a multiyear pipeline. 2025 revenue declined 3 percent and coal revenue fell 15 percent, but recurring demand across chemicals, ag, autos and intermodal, plus improving network velocity and dwell, supports medium-term stability.

Regulatory and weather shocks can dent near-term predictability, yet the franchise exhibits resilient cash conversion through cycles.

TTM operating income was 4.52 billion dollars, depreciation and amortization 1.68 billion dollars, and interest expense 844 million dollars, implying EBIT interest coverage roughly 5 to 6 times.

Balance sheet shows cash and short-term investments of 675 million dollars and total debt near 18.9 billion dollars at year end 2025. Ratings are Moody’s A3, S&P BBB plus, and Fitch A minus, all with stable outlooks.

Free cash flow before dividends was 1.79 billion dollars in 2025, temporarily depressed by a 470 million dollar hurricane rebuild and 429 million dollars of tax timing, which implies normalized FCF near 2.6 to 2.7 billion dollars. These metrics indicate solid investment grade resilience through downturns, albeit not pristine leverage.

Management returned 2.35 billion dollars to owners in 2025 via 1.38 billion dollars of buybacks and 972 million dollars of dividends while funding 2.90 billion dollars of property additions, including a one-time 470 million dollar Blue Ridge rebuild.

While buybacks have reduced diluted share count to an average 1.873 billion in 2025, the trucking acquisition of Quality Carriers proved subpar and triggered a 164 million dollar goodwill impairment in 3Q25 after a 108 million dollar impairment in 2024. We give credit for disciplined capex to strengthen network assets and expand growth corridors, but we mark down for the QC acquisition outcome and the need to keep capex elevated to sustain service and moat.

Steve Angel became President and CEO in September 2025, bringing a well-regarded capital allocation and integration track record from Praxair and Linde. Early actions focused on productivity, cost control and leadership realignment, and service metrics improved into Q4 2025. He inherits a solid railroad and an active regulatory backdrop.

While Angel’s pedigree is strong, his rail tenure is young, so we apply a conservative, watch-and-verify stance on execution and strategy under his leadership.