CSX Corporation (CSX), one of the leading rail transportation companies, is slated to release its first quarter 2011 results on Tuesday, April 19, after the closing bell. The current Zacks Consensus Estimate for first quarter earnings is pegged at $1.04 per share, representing an annualized growth of 33.24%.
Fourth-Quarter and Fiscal 2010 Performance
CSX Corp.’s fourth quarter and fiscal 2010 financial results surpassed the respective estimates. Fourth quarter earnings of $1.14 per share surpassed the Zacks Consensus Estimate of $1.10 and the year-ago level of 77 cents.
In 2010, earnings expanded nearly 40% year over year to a record $4.06 per share driven by the strength in volume, revenue, productivity and operating leverage.
Revenue climbed 21% year over year to $2.82 billion in the fourth quarter, and surpassed the Zacks Consensus Estimate of $2.67 billion on volume growth, which was driven by sustained economic growth across all major markets. For the full year, revenue was $10.6 billion, up 18% year over year.
Agreement of Estimate Revisions
In the last 30 days, out of the 27 analysts covering the stock, only 5 decreased their earnings estimates for the first quarter of 2011 while seven increased theirs upward. Similarly, for second quarter of fiscal 2011, out of the 26 analysts covering the stock, only 2 analysts decreased their earnings estimate whereas nine increased theirs upward.
For fiscal 2011, in the last 30 days, out of the 30 analysts covering the stock, 5 analysts decreased their earnings estimates and eight increased the same upward. Again, for fiscal 2012, out of the 30 analysts covering the stock, none decreased the earnings estimate while six increased theirs upward.
Magnitude of Estimate Revisions
Relative to these upward revisions, the Zacks Consensus Estimate inched up to a respective $1.04 for the first quarter and $1.31 for the second quarter from $1.03 and $1.28 during last 30 days.
Similarly, for fiscal 2011 and 2012, Zacks Consensus Estimates increased to $5.05 and $5.84 from $5.03 and $5.79, respectively, during last 30 days.
Earnings Surprises
CSX Corp. delivered continuous earnings surprises for the last four quarters with the average being 7.71%, which was above the Zacks Consensus Estimates.
The current Zacks Consensus Estimates for the ongoing quarter contains 0.96% downward risk while the upcoming quarter, reflects a 2.29% upside potential (essentially a proxy for future earning surprises). Similarly, for fiscal 2011 and 2012, the Zacks Consensus Estimates’ upside potentials are 1.19% and 3.94%, respectively.
Our Recommendation
We anticipate that CSX Corp. will benefit from improving economic fundamentals, higher productivity, increased volume growth and cost-control measures. In addition, the company’s strong and cash-rich balance sheet along with shareholder return makes it attractive for long-term investment.
However, we remain cautious on the stock due to competitive pressure from other railroads like Union Pacific Corporation (UNP) and Norfolk Southern Corp. (NSC) along with motor carriers that operate similar routes across its service area. Additionally, the company remains susceptible to issues like unionized workforce, capital intensive nature of business as well as increased railroad regulation, which may limit the upside potential of the stock.
Hence, we maintain our long-term Neutral recommendation on CSX Corp. supported by Zacks #3 (Hold) Rank.
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