Shares of CSX Corporation (CSX - Free Report) scaled a 52-week high of $65.93 on May 30, before retracing a bit to close the session at $65.64. The day’s closing price reflected an improvement of 2.6% over May 29’s close.
We note that this S&P 500 member’s impressive performance was not limited to May 30. Notably, the company has performed impressively in a year, gaining 20.3% compared with the S&P 500 Index’s 11.9% rally.
Let's delve deep to unearth the factors responsible for the impressive price performance.
CSX is benefiting from the Precision Scheduled Railroading system, which was implemented by the company’s former CEO — E. Hunter Harrison — who expired in December 2017. The system, designed to improve its operational efficiency, is being backed by CSX’s current CEO Jim Foote. The implementation of the above system resulted in CSX generating efficiency-related savings to the tune of $460 million in 2017. Strong performance of its intermodal segment is also a positive for the stock.
Furthermore, improvement in operating ratio (operating expenses as a percentage of revenues) was in tune with the company’s cost control efforts. To this end, the company’s adjusted operating ratio improved 570 basis points in the first quarter. CSX expects to achieve an operating ratio of 60% by 2020.
In fact, the lesser the value of operating ratio the better as it implies that more cash is available with the company to reward shareholders through dividends/buybacks. In February 2018, this Zacks Rank #3 (Hold) company announced a 10% dividend hike to 22 cents per share.
CSX, which bought back shares worth more than $2 billion in 2017, increased the existing share repurchase program to $5 billion. The $5-billion share repurchase program is expected to be completed by the first quarter of 2019.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We believe the new tax law is a blessing for Transportation companies like CSX. This is because the huge savings induced by the new law might result in an uptick in these shareholder-friendly activities. Other transportation stocks like Southwest Airlines Co. (LUV - Free Report) , Canadian Pacific Railway Ltd. (CP - Free Report) and Expeditors International of Washington, Inc. (EXPD - Free Report) also raised dividend payouts recently owing to the new tax law.
Other Favorable Measures
CSX’s trailing 12-month return on equity (ROE) supports its growth potential. Not only has the company’s ROE of 18% gradually increased in a year’s time, it also compares favorably with the ROE of 16.6% for the S&P 500 Index.
The company’s Momentum Score of A further highlights its short-term attractiveness. Moreover, CSX’s expected earnings per share growth rate (three to five years) of 13.3% compares favorably with its industry’s 10.6% reading.
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