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CSX Stock Attains 52-Week High: What's Driving the Rally?

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Shares of CSX Corporation (CSX - Free Report) hit a 52-week high of $75.62 during the trading session on Aug 27 before retracing a bit to close at $75.50. The stock has also performed impressively in a year’s time, soaring 51.7% compared with the industry’s rally of 35.8%.


 

Let’s unearth the factors responsible for this upsurge.

Catalysts Behind the Uptrend

The Precision Scheduled Railroading system since implementation last year has had a huge impact on the company’s growth prospects. The system is designed to improve operational efficiency by reducing costs. Evidently, operating ratio (operating expense as a percentage of revenues) has steadily improved over the past few quarters. For instance, in the second quarter of 2018, the metric improved 490 basis points.

Needless to mention that even the tax law, which reduces corporate tax rates significantly, has been aiding the company immensely. A low effective tax rate leads to huge savings, which in turn, boosts free cash flow. An increase in free cash flow means companies will have more cash at disposal to fund shareholder-friendly activities such as dividend payouts and share buybacks. In this regard, the company notably announced a 10% dividend hike this February.

The decreased effective tax rate also enhances profitability of companies by boosting bottom-line growth. A slashed tax rate aided CSX’s second-quarter results. The company anticipates the metric to be 24.5% in the second half of the year, much less than the year-ago figure.

The company’s efforts to reward shareholders through share buybacks are also encouraging. CSX increased the existing share repurchase program to $5 billion, expected to be completed by the first quarter of 2019.

On a further positive note, CSX has raised its full-year guidance for revenue growth from up slightly to up mid-single digits, hoping that export coal strength will be consistent among other factors.

On the back of the above positives, the Zacks Consensus Estimate for 2018 earnings has been revised 11.4% upward over the past 60 days. Also, the same for the full year has moved 9.8% north over the past 60 days.

Zacks Rank & Other Key Picks

CSX sports a Zacks Rank #1 (Strong Buy). Other top-ranked stocks in the broader Transportation sector include ArcBest Corporation (ARCB - Free Report) , Trinity Industries, Inc. (TRN - Free Report) and SkyWest, Inc (SKYW - Free Report) , each flaunting a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of ArcBest, Trinity and SkyWest have rallied more than 71%, 28% and 83%, respectively, in a year.

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