CSX Corporation (CSX)

Total return at 5 years: 0.9%/year = -0.5% appreciation + 1.5% dividend. The target price ($47) is ex-dividend; the $3 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $44 · Multiples $40) is below the market price ($48).

Today — expensive, no margin of safety: at $48 trades ~18.4% above its value discounted to today (~$40); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($47) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$25.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($48) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (4.7%/year) above our base case (3.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$4.8 bn of owner earnings in year 5 (vs ~$4.4 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on EV/EBIT. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

EBIT captures the operating profitability of a capital-intensive railroad business whose capex is largely maintenance (track, bridges, signaling), close to depreciation given the stable consolidated volume of recent fiscal years. The TTM (34.2% operating margin) sits between the FY2022 peak (40.1%) and the FY2025 low (32.1%, depressed by the Quality Carriers goodwill impairment and the incremental costs of network disruptions); the path projects a gradual margin recovery as post-Hurricane-Helene reconstruction capex normalizes and the non-recurring costs of 2025 are diluted.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $47 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $48, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $47 in 5 years plus $3 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $40. Against the current market price ($48), the margin of safety is -18.4% (trades above the maximum → a premium is paid) and the total return at that price would be 0.9% annually.

• Price vs. value. The price reflects a context of industry consolidation speculation.
• Entry multiple. The current EV/EBIT sits above the historical [13,18] range of the railroad archetype.
• Margin sensitivity. The return depends heavily on operating margin recovery from the FY2025 trough sustaining.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (80%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation. Predictable operating cash flow, with TTM FCF recovering after the FY2025 reconstruction capex peak.
• Return on capital. Return on capital relative to the 10% bar: 12.7%.
• Capital intensity. Maintenance capex near depreciation; structurally capital-intensive business.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Total volume transported remained essentially flat between FY2024 and FY2025 (+0.5%), but revenue per unit fell 4% (from $2,316 to $2,234), showing that consolidated revenue decline (-3.1%) is a price and mix problem, not volume: coal lost 15% in revenue on only 2% lower volume (lower export rates), while intermodal gained 4% in volume but lost revenue per unit.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Revenue trajectory. Declining revenue in FY2023–FY2025 by price and mix; TTM rebounds with normalization of network interruptions.
• Physical volume. Total volume essentially flat; intermodal growing, coal declining.
• Reinvestment opportunity set. Growth limited by the mature nature of the U.S. railroad network.

• Competitive position. Regional duopoly with Norfolk Southern in the eastern United States; network of ~20,000 miles impossible to replicate.
• Pricing power. Revenue per unit fell 4% in FY2025 despite stable volume, signaling mix pressure more than full pricing power.
• Traffic diversification. General merchandise 62%, intermodal 15%, coal 13% in structural decline, trucks 6%.
• Business cyclicality. Exposed to industrial and commodity cycle; coal still weighs non-trivially on revenue.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 2.4x
• !Interest coverage (EBIT / interest)6.6x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 80% of ROIC
• !Value creation (ROIC − 10% bar)+3pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.5x
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.4% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Long-term debt of ~$17.2 billion; ample interest coverage on EBIT.
• Liquidity. Cash and equivalents of ~$1.39 billion; dependent on recurring operating cash flow.
• Interest coverage. EBIT comfortably covers interest expense.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• CEO. Stephen F. Angel, external appointment with industrial profile (ex-Praxair, ex-Linde); assumed office September 2025.
• Capital allocation. Network maintenance prioritized, dividend with 21 consecutive annual increases, buyback in sustained deceleration.
• Shareholder alignment. Director and executive ownership not disaggregated in proxy summary; largest holders are passive index managers.

• No classic discount source is identifiable: there is no panic-cycle trough and no absence of buyers.
• The TTM operating margin (34.2%) is still depressed versus the FY2022 peak (40.1%) by items the company declares transitory—the Quality Carriers goodwill deterioration and Howard Street tunnel and Hurricane Helene interruption costs—which makes the multiple appearing on that margin slightly overstate how expensive the underlying business is.
• Part of the strength of the price likely reflects industry consolidation speculation generated by the announced Norfolk Southern–Union Pacific merger in 2025, more than already-realized operational improvement in CSX.

Absent a clear discount source (missing buyers or forced sellers), caution is warranted: the current price may be anticipating margin recovery and eventual industry consolidation that are not yet in reported numbers. The standalone valuation in this analysis is of the business in operation, not of a merger scenario.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -7%/year (-31% total): the margin of safety protects the downside. The bull (+6%/year, +35% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Regulatory risk. Pending Surface Transportation Board approval for the Norfolk Southern–Union Pacific merger, which may reconfigure the sector.
• Cybersecurity risk. The network is critical infrastructure of the United States, at higher attack risk.
• Labor risk. ~73% of workforce unionized; renegotiations may raise costs or interrupt service.
• Structural decline risk. Coal (13% of revenue) fell 15% year-over-year in FY2025 by lower export rates.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 13% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 3% at a multiple/growth of 7.0 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 13% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 5%, in line with our 3%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -9%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: efficient scale, cost advantage, switching costs, network effects → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 5% vs our 3%: coherent, but at the optimistic end of the range.