A CSX share closed at $34.67 on December 29, 2023. It fits easily inside a $200 research budget. Two other railroads seem to support a higher price. Affordable, perhaps even cheap.
Then you open the accounts. One peer's profit includes a major incident charge. CSX's cash benefited from delayed tax payments. Which earnings deserve to set the price?
Your job is to defend a range or explain why you cannot. A small purchase still needs a sound case and a place in your existing portfolio plan.
Start with a dated packet
This exercise pairs December 29 quotes with full-year accounts published in 2024. It reconstructs a historical comparison; the complete packet was unavailable on the quote date. All fiscal years end December 31. Company totals are USD millions; prices and diluted earnings per share are dollars.
The peers are Union Pacific (UNP) and Norfolk Southern (NSC). Divide each quote by EPS to fill the P/E column.
| Company | Quote | FY2023 EPS | P/E |
|---|---|---|---|
| CSX | $34.67 | $1.85 | |
| UNP | $245.62 | $10.45 | |
| NSC GAAP | $236.38 | $8.02 | |
| NSC adjusted | $236.38 | $11.74 |
Sources: the 2024 proxies dated March 25 (CSX), March 26 (UNP), and March 20 (NSC) report the unadjusted closing prices. EPS comes from their 2023 annual reports. NSC's adjusted row excludes the Eastern Ohio incident and is a company-defined, non-GAAP measure.
First, reproduce one input: find $1.85 diluted EPS on printed page 52 of CSX's annual filing, dated February 14, 2024. Check the year and units; keep it open for the cash exercise.
Price and value separate here. The quote is a fact. The earning power behind it is a judgment.
Choose peers by the business
All three run US freight rail networks with heavy capital spending and annual accounts in dollars. CSX and NSC operate mainly in the East; UNP in the West. Their routes, freight mix, and operating performance differ. Sharing an industry starts the comparison; it does not finish it.
Berkshire Hathaway fails this first test. Its 2023 report combines BNSF with insurance, investments, utilities, and other businesses. The parent's P/E prices that whole mixture.
Next, compare operating profit with the interest bill. The annual reports give these 2023 inputs for operating income ÷ interest expense:
- CSX: 5,561 ÷ 809 = 6.87 times.
- UNP: 9,082 ÷ 1,340 = 6.78 times.
- NSC: 2,851 ÷ 722 = 3.95 times; excluding the incident, 3,967 ÷ 722 = 5.49 times.
NSC has less profit for each dollar of interest, even after removing the charge. Coverage flags a difference; it does not make debt and leases comparable.
EV/EBITDA uses enterprise value to compare businesses before interest expense. It needs complete data on cash, debt, leases, and other claims. The cost of maintaining the tracks still needs a separate check.
Let the earnings choice move the range
Using reported earnings, the P/Es are 18.74 for CSX, 23.50 for UNP, and 29.47 for NSC. Apply the peers' multiples to CSX's $1.85 EPS, rounding only the final amounts. UNP gives $1.85 × ($245.62 ÷ $10.45) = $43.48; NSC gives $54.53. Your first range is $43.48–$54.53 per CSX share.
The upper end comes from NSC's depressed earnings. A charge can raise P/E without the share price moving a cent. Transferring that multiple to CSX transfers the distortion.
Try the company's alternative. NSC's February 5, 2024 reconciliation removes the incident's $3.72 effect on EPS: $8.02 + $3.72 = $11.74. Its P/E becomes $236.38 ÷ $11.74 = 20.13.
NSC now supplies the lower endpoint: $1.85 × ($236.38 ÷ $11.74) = $37.25. UNP supplies the $43.48 upper endpoint. This $37.25–$43.48 range depends on accepting NSC's adjustment.
Adjusting one company does not settle all three. CSX had $34 million of property gains. UNP disclosed a $107 million real-estate gain and a $114 million deferred-tax benefit (February 9, 2024 filing, printed page 30).
Which items belong in repeatable earnings, and what is their after-tax effect? The packet leaves that work unfinished. NSC's remaining incident liabilities also need investigating.
Even with comparable earnings, peer multiples tell you what the market paid elsewhere. They can carry the market's mistakes with them.
The annual reports show diluted EPS for 2021 → 2022 → 2023:
- CSX: $1.68 → $1.95 → $1.85.
- UNP: $9.95 → $11.21 → $10.45.
- NSC, GAAP: $12.11 → $13.88 → $8.02.
All three earned less in 2023 than in 2022. Three years reveal variation, not a whole business cycle. If growth is your reason for accepting a multiple, test the forecast behind forward estimates and the growth rate used in PEG.
For a stress test, assume CSX earns 10% less and keep the peer multiples unchanged. Both endpoints fall 10%, to $33.52–$39.13. The low end crosses below the $34.67 quote.
Check the cash behind the profit
On printed page 55 of CSX's filing, find operating cash and property additions. Our free cash flow (FCF) convention subtracts capital spending: 5,549 − 2,281 = 3,268. CSX's own FCF adds 52 of property proceeds and advances, giving 3,320 (page 34).
Page 34 also discloses 381 of federal estimated taxes postponed into first-quarter 2024. Take out that benefit: 3,268 − 381 = 2,887. This is our timing stress, not an official FCF figure; other timing effects remain untested.
| Evidence | Reported | Calculation | Unresolved |
|---|---|---|---|
| FCF | 5,549; 2,281 | 3,268 | Future capex |
| Tax delay | 381 | 2,887 | Other timing |
| Earnings | 3,715 | — | EPS basis |
CSX 2023 totals, USD millions.
Against net earnings of 3,715, cash conversion is 3,268 ÷ 3,715 = 88.0%. The timing stress gives 2,887 ÷ 3,715 = 77.7%. Delayed bills make cash look better without making the business earn more.
Free-cash-flow yield compares FCF with equity market value. Here we compare it with profit to test the earnings story. FCF can fund debt repayments as well as distributions; it is not a promised payout. Weak cash support is also a reason to investigate a value trap.
This is valuation triangulation: using several lenses to challenge one view. Cash and profit share the same business risks, so agreement between them is not independent proof. Averaging a cash-conversion percentage with a dollar range would mean nothing.
Write what would change your mind
Before reading the answer, write four lines: your dated range; why the peers belong; the missing earnings adjustment; and evidence that would change your mind. That is an auditable valuation decision memo: someone else can retrace the numbers and challenge your judgment.
The quote sits just 6.9% below the $37.25 endpoint: ($37.25 − $34.67) ÷ $37.25. A claimed margin of safety is only as sound as the earnings behind it. Save the memo in your investing journal.
You can stop here. A justified decision to wait completes the exercise; another defensible answer may use a wider range or decline to give one.
Optional lenses for other questions
Choose a lens that fits the business; collecting ratios is not collecting evidence.
| Business | Starting lens | Boundary |
|---|---|---|
| Profitable firms | P/E plus cash | Recurring EPS |
| Thin profits | Price-to-sales | Future margins |
| Banks | Price-to-book | Asset quality |
| REITs | REIT measures | Property cash |
To build from future cash instead of peer prices, time value of money explains discounting and forecasting cash flows builds the operating case. The discount rate matches a required return to those cash flows; DCF brings them to present value. This exercise needs no DCF.
Earnings yield and the equity risk premium explore required returns, while CAPE supplies market context. Neither settles this company case.
The next core study, return on equity, asks how effectively a business uses owners' capital. Staying with diversified funds remains a complete investing route.
In short
- A dated quote and an earnings estimate are different kinds of evidence.
- Sharing an industry starts a peer comparison; it does not finish it.
- Changing one earnings denominator can move the whole valuation range.
- Cash can challenge a valuation without becoming another price target.
- A provisional range and a justified decision to wait are useful finished work.