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CSX Stock Rises 38% in a Year: What's Driving the Rally?

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Shares of CSX Corporation (CSX - Free Report) have fared well in a year’s time. The stock has rallied 37.7% compared with the industry’s rise of 19.2%.

Reasons for Impressive Price Performance

CSX is benefitting from the Precision Scheduled Railroading system, which was implemented by the company’s former CEO — E. Hunter Harrison. The system has been designed to improve operational efficiency and is being backed by the current CEO Jim Foote. In line with this, improvement in operating ratio is concurrent with the company’s cost-control efforts. In fact, operating ratio has been steadily declining in the past few quarters. Lesser the value of operating ratio, the better it is as more cash is available with the company to reward shareholders through dividends/buybacks.

Further, the tax reform policy, which reduces corporate tax rate significantly and enables capital expenses to be deducted in the year that incurred the same, is a positive for the company. A low effective tax rate is expected to boost the bottom line in the last quarter of 2018. CSX expects the metric to be 24.5% in the quarter, lower than the year-ago quarter’s figure.

Moreover, the company's efforts to reward shareholders in the form of dividend payments and buybacks impress us.  In February 2018, the company hiked quarterly dividend by 10% to 22 cents per share. The company bought back shares worth more than $2 billion in 2017, increased the existing share repurchase program to $5 billion. The share repurchase program is expected to be complete by Mar 31, 2019.

Additionally, the company’s decision to raise current-year revenue growth guidance is additional positive.  The company projects revenues to increase between 6% and 8%, compared with the previous guidance of an increase in the mid-single digits.

Bullish Readings & Zacks Rank

CSX has an impressive surprise history. It beat estimates in each of the trailing four quarters, the average being 15.4%.

The positivity revolving around the stock can be gauged from the Zacks Consensus Estimate being revised 7.5% upward in the past 60 days for current-quarter earnings.

CSX's trailing 12-month return on equity (ROE) supports growth potential. The company’s ROE of 21.4% compares favorably with S&P 500 index’s ROE of 18.1%, reflecting efficiency in using shareholders’ funds.

Considering these positives, we believe that CSX should be added by investors to their portfolios. The Zacks Rank #1 (Strong Buy) sported by the stock seems to suggest the same.

Other Stocks to Consider

Investors interested in the Zacks Transportation sector may consider Air France-KLM SA (AFLYY - Free Report) , Frontline Ltd. (FRO - Free Report) and Spirit Airlines, Inc. (SAVE - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Air France, Frontline and Spirit Airlines have rallied 35.1%, 33.8% and 35.6% in the past six months, respectively.

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