Will CSX Corp. (CSX) Surprise Earnings This Season?

CSX Corporation (CSX) is set to release fourth-quarter fiscal 2014 results after the market closes on Jan 13, 2015.

In the last quarter, the company delivered a positive 8.51% earnings surprise. Let’s see how things are shaping up for this announcement.

Factors at Play this Quarter

Despite favorable rail industry pricing, improving operational efficiency, and the expansion of network and terminal capacity, the company remains highly susceptible to changes in oil prices.

Oil prices directly impact the industry’s prospects as railroads have traditionally been a source of crude oil transportation from new shale basins in the U.S. and Canada, limiting the need for pipeline capacity. However, the recent sharp decline in oil price is not expected to affect transportation volumes at this stage. Nevertheless, if prices remain low for an extended period, it will lower production at these shale basins, which in turn will result in reduced rail-based crude oil shipments.

Moreover, railway carriers face intense competition from various transportation providers including railroads, motor carriers, barges and ships that operate along similar routes across its service area. Hence, low oil prices will help these other transport companies, especially the trucking companies, offer attractive rates to clients, thereby making rail companies lose significant amount of business while moving ahead.

Earnings Whispers

Our proven model does not conclusively show that CSX Corp. is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Most Accurate estimate and the Zacks Consensus Estimate are poised at 49 cents. Hence, the ESP is 0.00%.

Zacks Rank: CSX Corp. carries a Zacks Rank #3 (Hold). While this increases the predictive power, we also need to have a positive ESP to be confident of an earnings surprise.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.

Kansas City Southern (KSU) with an Earnings ESP of +0.81% and a Zacks Rank #3.

Union Pacific Corporation (UNP) with an Earnings ESP of +1.33% and a Zacks Rank #3.

United Parcel Service, Inc. (UPS) with an Earnings ESP of +1.37% and a Zacks Rank #3.