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CSX to Report Q1 Earnings: What’s in Store for the Stock?


CSX Corporation CSX is slated to report first-quarter 2018 results on Apr 17, after the market close.

Last quarter, the company delivered a positive earnings surprise of 14.3%. Moreover, the company has an impressive earnings history, with the metric surpassing the Zacks Consensus Estimate in three of the trailing four quarters with an average beat of 10.3%.

However, the scenario pertaining to this quarter does not seem too bright. This is evident from the Zacks Consensus Estimate for first-quarter earnings being revised 2.9% downward in the last 60 days.

Factors at Play

Weakness in the automotive sector poses a major challenge to CSX. This is because the company draws a major portion of revenues from this sector. Hence, sluggish automotive revenues might hurt the top line in the first quarter.

Additionally, declining coal production in the current year is likely to hamper first-quarter results. A drop in U.S. coal exports coupled with the decline in usage of coal for electricity generation in the United States are hurting production of the commodity. The Zacks Consensus Estimate for coal revenues in the to-be-reported quarter is pegged at $529 million, below $541 million reported in the previous quarter.

The company’s high-debt levels further add to its woes. This is indicated by its current long-term debt-to-equity (expressed as a percentage) ratio of 80.1, which compares unfavorably with the industry’s figure of 66.3%.

However, the Precision Scheduled Railroading system, implemented by the company's former CEO E. Hunter Harrison is anticipated to boost results in the period to be reported. The new model is likely to drive the top line on the back of volume and pricing gains from the merchandise and intermodal segments.

The new tax law should also boost profits for the company, leading to bottom-line growth in the first quarter.

The company’s efforts to reward shareholders through dividend payments and buybacks are also impressive. In February, the company announced a 10% dividend hike. In light of the new tax law, we expect an upswing in such shareholder-friendly moves, resulting from sums of huge savings owing to the reduced tax rate.

Growth of the intermodal sector is also anticipated to aid the top line this earnings season. The Zacks Consensus Estimate for first-quarter intermodal revenues stands at $448 million, above $434 million, recorded a year ago.

Earnings Whispers

Our proven model does not conclusively show that CSX is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as elaborated below.

Zacks ESP: CSX has an Earnings ESP of -1.71%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: CSX carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative ESP leaves surprise prediction inconclusive.

We caution against all Sell-rated stocks (4 or 5) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

CSX Corporation Price and EPS Surprise

CSX Corporation Price and EPS Surprise | CSX Corporation Quote

Stocks to Consider

Investors interested in the broader Transportation sector may consider stocks like American Airlines Group Inc. AAL, JetBlue Airways Corporation JBLU and Alaska Air Group, Inc. ALK as these possess the right combination of elements to deliver an earnings beat this time around.

American Airlines has an Earnings ESP of +17.82% and a Zacks Rank of 3. The company is expected to report first-quarter results on Apr 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

JetBlue Airways is a #3 Ranked player and has an Earnings ESP of +2.00%. The company is slated to release first-quarter numbers on Apr 24.

Alaska Air Group has an Earnings ESP of +4.55% and is a Zacks #3 Ranked player. The company will announce first-quarter financial figures on Apr 23.

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