CSX CorporationCSXNASDAQ

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $42.96 per share(market-calibrated)

-0.5%

Upside to Fair Value

Current

$43.17

Pure Model

$42.45

Fair Value

$42.96

Bull Case

$53.42

Bear Case

$32.44

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

3.80%

Calibrated Growth

2.48%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $42.45.

What's Driving This Ratingfor CSX

↓

CapEx normalizing toward maintenance

Historical CapEx is 16.48% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$2.7B in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 38.87% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects 2.79% revenue growth, fading to 2.25% by Year 10. Revenue reaches $20.6B (vs $14.1B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $34.66/share (15.2x terminal FCF) while exit multiple gives $50.24/share (24.2x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $43.17, the market implies 3.80% perpetual growth — 155bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 74.43% indicates efficient cash generation. FCF reaches $7.7B by Year 10 (37.24% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.29

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.30%

Cost of Debt

Pre-tax Cost of Debt4.18%

Tax Rate23.35%

After-tax Cost of Debt3.21%

Equity Weight (E/V)81.00%

Debt Weight (D/V)19.00%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (81.00% × 10.30%) + (19.00% × 3.21%)

= 8.96%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$14.5B	$15.8B	$17.5B	$18.9B	$20.6B
EBIT	$5.6B	$6.1B	$6.8B	$7.4B	$8.0B
Tax	$1.3B	$1.4B	$1.6B	$1.7B	$1.9B
NOPAT	$4.3B	$4.7B	$5.2B	$5.6B	$6.1B
+ Depreciation	$1.6B	$1.8B	$2.0B	$2.1B	$2.3B
- Capex	$2.4B	$2.1B	$1.9B	$1.5B	$720M
- Δ NWC	$39M	$60M	$82M	$71M	$45M
Free Cash Flow	$3.5B	$4.2B	$5.2B	$6.2B	$7.7B
Discount Factor	0.918	0.773	0.651	0.549	0.424
Present Value	$3.2B	$3.3B	$3.4B	$3.4B	$3.3B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$7.7B

Terminal Growth Rate2.25%

WACC8.96%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$116.8B

PV of Terminal Value$49.6B

Exit Multiple Method

Year 10 EBITDA$10.3B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$185.4B

PV of Terminal Value$78.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$33.2B

PV of Terminal Value$49.6B

Enterprise Value$82.8B

(-) Net Debt$18.2B

Equity Value$64.6B

Shares Outstanding1.9B

Price per Share$34.66

Exit Multiple Method

PV of Projected FCFs$33.2B

PV of Terminal Value$78.6B

Enterprise Value$111.9B

(-) Net Debt$18.2B

Equity Value$93.7B

Shares Outstanding1.9B

Price per Share$50.24

Pure Model Fair Value

$42.45

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
6.96%	$54.01	$55.90	$58.19	$61.03	$64.63
7.96%	$46.56	$47.80	$49.26	$51.00	$53.10
8.96%	$40.61	$41.47	$42.45	$43.59	$44.93
9.96%	$35.70	$36.31	$37.00	$37.79	$38.69
10.96%	$31.55	$32.00	$32.50	$33.07	$33.71

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$32.44

-24.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.61

Base Case

$42.45

-1.7% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.29

Bull Case

$53.42

23.7% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.10

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth2.79%

Year 3 Revenue Growth3.98%

Year 5 Revenue Growth4.95%

Year 7 Revenue Growth3.87%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin38.87%

Tax Rate23.35%

Historical Capex / Rev16.48%

Terminal Capex / Rev3.50%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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