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CSX Corp (CSX) Stock Gains 31% Year to Date: Here's Why

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Shares of CSX Corporation (CSX - Free Report) have rallied 31.1% so far this year, handily outperforming its industry’s 14.3% growth.

YTD Price Performance

 

 

Reasons Behind the Rally

CSX performed exceedingly well in the second quarter of 2018, reporting better-than-expected earnings and revenues. Both the metrics also improved on a year-over-year basis. Lower costs aided results. In fact, CSX has been planning to trim costs for quite some time under 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. Also, improvement in operating ratio is in tune with the company’s cost control efforts. The metric has been steadily declining over the past few quarters. Notably, 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.

Volume growth, lower tax rates and strong core pricing gains across all major markets also contributed to CSX’s impressive performance. Furthermore, the company 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.

CSX too has an impressive record with respect to its bottom-line performance. In second-quarter 2018, this Jacksonville, FL-based railroad operator’s earnings outshined the Zacks Consensus Estimate for the third time in the trailing four quarters.  

This apart, the company’s efforts to reward shareholders through dividend payments and buybacks are encouraging.  In February 2018, CSX announced a 10% dividend hike. Following the announcement, the new quarterly dividend is 22 cents per share. The company, which bought back shares worth more than $2 billion in 2017, raised the existing share repurchase program to $5 billion. The present buyback, $2 billion of which is completed, is expected to close by the first quarter of 2019.

We note that CSX’s trailing 12-month return on equity (ROE) supports its growth potential. The company’s ROE of 19.3% compares favorably with the S&P 500’s tally of 17.3%, thus highlighting the fact that CSX is efficient in using shareholders’ funds.

Apart from CSX, other railroad operators like Union Pacific Corporation (UNP - Free Report) , Norfolk Southern Corporation (NSC - Free Report)   and Canadian Pacific Railway Limited (CP - Free Report) have raised their respective dividend payouts this year.

Earnings Estimates on an Upswing

Upward estimate revisions reflect optimism in a stock’s prospect. CSX scores impressively on this front too. This Zacks Rank #1 (Strong Buy) company has witnessed the Zacks Consensus Estimate for current-quarter and year earnings being revised 11.4% and 9.2% upward, respectively, over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

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