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Will Lower Tax Rates Aid Revival of CSX This Earnings Season?


CSX Corporation CSX is slated to report fourth-quarter 2018 results on Jan 16, after market close.

In the third quarter, the company delivered impressive results, with earnings and revenues beating the Zacks Consensus Estimate. The bottom line was driven by lower costs. Also, the top line improved on a year-over-year basis.

CSX has an impressive earnings surprise history. The company’s earnings beat estimates in each of the trailing four quarters, the average being 15.4%.

Factors Likely at Play

CSX is expected to perform well in the fourth quarter on the back of impressive performance in the Precision Scheduled Railroading system, which is designed to enhance operational efficiency. Reduction in costs is expected to improve operating ratio (operating expenses as a percentage of revenues) in the to-be-reported quarter.

Furthermore, consistent strength in coal, intermodal and merchandise revenues are expected to boost top-line results in the fourth quarter. The Zacks Consensus Estimate for fourth-quarter coal revenues is pegged at $584 million, which compares favorably with $541 million reported in the prior-year quarter.

The consensus mark for intermodal revenues is pegged at $512 million, reflecting a rise from $471 million in the year-ago quarter. Similarly, the consensus estimate for merchandise revenues is pegged at $1,897 million, higher than $1,743 million in the year-ago quarter.

The current tax law, which reduces corporate tax rate significantly, has been boosting the company’s results ever since its implementation in 2017. The significant cut in corporate tax rate is likely to boost cash flow, which is expected to drive the bottom line in the to-be-reported quarter.

However, we are concerned about the company’s high debt-levels.

CSX Corporation Price and EPS Surprise

CSX Corporation Price and EPS Surprise | CSX Corporation Quote

Earning Whispers

Our proven model does not show that CSX is likely to beat estimates this quarter. This is because a stock needs to have a positive Earnings ESP and a solid 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 Rank: CSX carries a Zacks Rank #2.

Earnings ESP: CSX has an Earnings ESP of -1.80%. The Most Accurate Estimate is at 98 cents a share, lower than the Zacks Consensus Estimate of $1.00. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Stocks to Consider

Investors interested in the Zacks Transportation sector may check out the other companies with the right combination of elements to beat estimates in the next releases:

ArcBest Corporation ARCB has an Earnings ESP of +0.14% and a Zacks Rank #1. The company will release fourth-quarter 2018 results on Jan 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

JetBlue Airways Corporation JBLU has an Earnings ESP of +2.86% and a Zacks Rank #2. The company will release fourth-quarter 2018 results on Jan 24.

Southwest Airlines Co. LUV has an Earnings ESP of +2.31% and a Zacks Rank #2. The company will release fourth-quarter 2018 results on Jan 24.

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