Shares of CSX Corporation CSX have gained 12.9% in 2018, against the industry’s 0.2% decline.
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Reasons Behind the Price Surge
CSX has been benefiting from the Precision Scheduled Railroading model, since its implementation in 2017. The model aims at reducing costs, enhancing services and optimal asset utilization. In this regard, the company’s operating ratio (operating expenses as a percentage of revenues) has been steadily declining over the past few quarters. Lesser the value of operating ratio, the better it is for the company as it implies that more cash is available to reward shareholders through dividends/buybacks.
That said, CSX consistently focuses on rewarding its shareholders through dividends and share buybacks. In February 2018, the company announced a 10% dividend hike to 22 cents per share. It has also increased the existing share repurchase program to $5 billion, which is expected to be completed by Mar 31, 2019.
Additionally, the amended tax law, which reduces corporate tax rate significantly and enables capital expenses to be deducted in the year it is incurred, has contributed immensely to bottom-line growth. Notably, the company’s earnings have surged 95% in the first nine months of 2018.
Will the Momentum Continue?
The Precision Scheduled Railroading model and tax reform benefits are anticipated to continue boosting results in the near term. For full-year 2018, the company expects revenues to increase between 6% and 8%. Previously, the company had predicted the same to increase in mid-single digits.
The positivity surrounding the stock is further evident from the Zacks Consensus Estimate for fourth-quarter 2018 earnings, which has moved up 6.4% in the past 90 days. Final quarter results will be revealed on Jan 16. The consensus mark for 2018 and 2019 earnings has also been revised 27.5% and 4.5% north, respectively, over the same time frame.
Zacks Rank & Key Picks
CSX currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are United Continental Holdings UAL, Spirit Airlines SAVE and Frontline Ltd. FRO. While United Continental holds a Zacks Rank #2 (Buy), Spirit and Frontline flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of United Continental, Spirit and Frontline have rallied more than 24%, 29% and 20%, respectively, in 2018.
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