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Will Q3 Earnings Hold a Surprise for CSX Corp (CSX) Stock?


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CSX Corporation (CSX - Analyst Report) is scheduled to report third-quarter 2016 results on Oct 12, after markets close.

In the second quarter of 2016, the company had reported a positive earnings surprise of 6.82%. The bottom line was driven by lower costs. In fact, the Jacksonville, FL-based railroad operator has an impressive track record with respect to earnings per share. The company outpaced the Zacks Consensus Estimate in three of the last four quarters with an average beat is 3.79%.

However, our proven model does not conclusively show that the company is likely to beat earnings. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP:  The Earnings ESP for CSX Corporation is 0.00%. This is because the Most Accurate estimate of 45 cents is in line with the Zacks Consensus Estimate.

Zacks Rank: CSX Corporation carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, our prediction is complicated by the company’s 0.00% Earnings ESP.

Note that stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

CSX CORP Price and EPS Surprise


CSX CORP Price and EPS Surprise | CSX CORP Quote

Factors at Play

Looking at the fundamentals, we have come across some factors that are likely to influence the quarterly results. Let’s take a look.

Dwindling coal shipments have been hurting CSX Corporation for quite some time and the third quarter is unlikely to be an exception. At the Cowen and Company 9th Annual Global Transportation Conference last month, the company projected slight sequential decline in third-quarter earnings. The company expects quarterly volumes to decrease in high-single digits, mainly due to coal-related woes. Soft coal revenues are likely to continue affecting the company through the remainder of the year. Total coal tonnage for 2016 is expected to decrease 20–25%.

To counter the challenges, the company is working on improving operational efficiency.  In fact, CSX Corporation projects efficiency-related savings for 2016 to grow to $350 million. We are also impressed by the company’s policy to reward investors through dividends and share buybacks. We expect an update on the shareholder-friendly activities at the third-quarter conference call.

Moreover, the inauguration of the expanded 102-year old Panama Canal earlier this year might prove to be beneficial for companies with strong east Coast operations, such as CSX Corporation and Norfolk Southern Corporation (NSC - Analyst Report) . An update on the issue is keenly awaited.

Stocks That Warrant a Look

Here are a few transportation stocks that you may want to consider, as our model shows that these have the right combination for an earnings beat this time around:

Genesee & Wyoming (GWR - Snapshot Report) has an Earnings ESP of +4.26% and a Zacks Rank #2. The company, which owns and operates short line and regional freight railroads, is expected to report third-quarter earnings on Nov 4. The company beat the Zacks Consensus Estimate in each of the last four quarters by an average of 5.71%.

Martin Midstream Partners LP (MMLP - Snapshot Report) has an Earnings ESP of over 100% and a Zacks Rank #1. This collector and seller of petroleum products and by-products has seen the Zacks Consensus Estimate for 2016 earnings rise 7.1% over the last 30 days.You can see the complete list of today’s Zacks #1 Rank stocks here.

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