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CSX Rides on Dividends Amid Sluggish Revenues & High Debts

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We recently issued an updated report on CSX Corporation (CSX - Free Report) . Factors like high debt levels, sluggish revenues and coronavirus-related woes are setbacks for the company. However, its shareholder-friendly measures and cost-cut initiatives are aiding growth.

Its operating expenses declined 6% and operating ratio (operating expenses as a percentage of revenues) improved to 58.4% during 2019.  Notably, lower the value of this key metric, the better.

The company’s shareholder-friendly measures through dividend payments and buybacks are encouraging. This February, it announced an 8% dividend hike to 26 cents per share. In January 2019, the company’s board cleared a new $5-billion share buyback program, following early completion of the previous one. Moreover, adjusted free cash flow increased 9% year over year to $3.5 billion in 2019. This reflects CSX's robust cash generating capabilities.

The expansion of its intermodal service in order to provide customers with a faster and more efficient solution is noteworthy. ROE (expressed as a percentage) for CSX is currently 27.5 compared with 18.5 for the S&P 500 Index, which implies that the company is efficient in utilizing its shareholders' funds.

However, persistent weakness in coal revenues (down 8% in 2019) due to lower export demand and intermodal revenues (down 9% in 2019) are concerning. Consequently, total revenues slipped 3% year over year in 2019. In the wake of the coronavirus outbreak that has caused global slowdown, volumes may decline this year as well, at least in the first half.

Additionally, CSX's high debt levels are worrisome. The debt-to-equity ratio for CSX is more than 100% compared with 82.7% for S&P 500, which implies that the company is funding most of its ventures with debt.

Zacks Rank & Stocks to Consider

CSX currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Zacks Transportation sector are GATX Corporation (GATX - Free Report) , Höegh LNG Partners LP (HMLP - Free Report) and Teekay Tankers Ltd. (TNK - Free Report) . GATX and Teekay Tankers sport a Zacks Rank #1 (Strong Buy), whereas Höegh LNG carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term (three to five years) expected earnings per share growth rate for GATX, Höegh LNG and Teekay Tankers is pegged at 15%, 8.5% and 3%, respectively.

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