
Buy CSX to Ride the Railroads
The Dow Jones Transportation Average( DJT) is up nearly 4% for the year to date, showing an improvement in the fortunes of transportation stocks.
CSX (CSX) - Get Report , however, has not been one of them. Its shares, at $25, are down 3.5% for the year to date. The railroad reports first-quarter earnings after Tuesday's close.
For the quarter, analysts, on average, expect CSX to earn 37 cents per share on revenue of $2.68 billion, compared to the year-ago quarter when it earned 45 cents on $3.03 billion in revenue. For the year earnings are projected to decline 8.5% to $1.83 per share, while full-year revenue of $11.18 billion would mark a 5.3% decline from last year.
CSX is the biggest railroad operator in the eastern U.S. Like other railroads, it has been affected by weak oil prices that don't give energy companies much incentive to ship the fuel by railroad, and a 32% drop in coal volume. TheStreet's Jim Cramer, when asked recently, said he'd consider recommending CSX but after it reports earnings.
CSX has beat earnings estimates in eight straight quarters but that drop in coal volume during the fourth quarter continues to weigh on its business. The company's biggest profit producer is still intermodal shipping, which is about 40% of its rail volume.
So the stock is cheap, and the company pays an 18-cent quarterly dividend that yields 2.86% annually. At the current price, CSX stock is just 13 times the 2016 consensus estimate of $1.83, which is a four-point discount to the S&P 500 index. Based on the 2017 consensus of $1.97, the price to earnings multiple drops to 12, implying CSX will revert to earnings growth of 7.6% year over year, compared 8.5% projected decline for 2016. So in transportation, CSX stock is one to own.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.









