CSX Corporation (CSX) continues to deliver exceptionally strong results as it benefits from a modestly improved economy and a relatively high degree of operating leverage.
Consensus estimates for both 2011 and 2012 have been moving after the company reported better than expected results for the second quarter. It is a Zacks #2 Rank (Buy) stock.
CSX has also been aggressively raising its dividend over the last several years and currently yields a solid 1.9%. Valuation looks attractive too with shares sporting a PEG ratio of 0.8.
Second Quarter Results
CSX Corporation reported strong second quarter results on July 13. Earnings per share came in at 46 cents, beating the Zacks Consensus Estimate by 2 cents. It was a 28% increase over the same quarter in 2010.
Revenue rose 13% to $3.019 billion, beating the Zacks Consensus Estimate of $2.978 billion. The company saw increases across each of its major markets due to higher pricing and volumes.
Operating income was up 21% year-over-year to a record $926 million as the operating ratio improved 190 basis points to 69.3% thanks to operating leverage.
Outlook
The vast majority of analysts revised their earnings estimates higher for both 2011 and 2012, sending the stock to a Zacks #2 Rank (Buy). Based on current consensus estimates, earnings are projected to grow 29% in 2011 and 17% in 2012.
Consensus estimates have been consistently climbing higher over the last several months as CSX has delivered 10 consecutive positive earnings surprises:
Dividend
CSX has been aggressively raising its dividend over the last several years, including a 38% hike in May. Since 2005, the company has raised it at an average annual clip of 39%.
It currently yields a solid 1.9%.
Valuation
Despite more than a 40% increase in its share price over the last year, valuation still looks very reasonable for CSX. The stock trades at just 14.2x forward earnings, a significant discount to the industry average of 19.2x.
Its PEG ratio is an attractive 0.8 based on a 5-year EPS growth rate of 18.1%.
The Bottom Line
With a modestly improving economy and high degree of operating leverage, CSX is well-positioned to continue delivering strong EPS growth over the next few years. As estimates continue to rise, CSX looks attractively priced at just 14.2x forward earnings. A rapidly rising dividend doesn’t hurt either.
Read the February 4 article here.
This Week’s Growth & Income Zacks Rank Buy Stocks:
Genuine Parts Company (GPC) recently delivered its 10th consecutive positive earnings surprise on record quarterly sales and earnings. Analysts almost unanimously raised their estimates off the strong quarter, sending 2011 and 2012 consensus estimates higher. It is a Zacks #2 Rank (Buy) stock. The company has also been steadily increasing its dividend and currently yields an attractive 3.2%. Read the full article.
Philip Morris International Inc. (PM) recently delivered another strong quarter driven in large part by stellar growth in Asia. Management raised its guidance for the full year, prompting analysts to revise their estimates higher, which sent the stock to a Zacks #2 Rank (Buy). The company continues to generate solid free cash flow, which is has been using to aggressively buy back shares and raise its dividend. It currently yields 3.6%. Read the full article.
United Technologies Corp. (UTX) recently delivered a triple play for the second quarter of 2011: a positive sales surprise, a positive earnings surprise, and increased guidance. The vast majority of analysts have been raising their estimates too, sending the stock to a Zacks #2 Rank (Buy). United Technologies has also been returning value to shareholders through stock buy backs and dividend increases. It currently yields a solid 2.2%. Valuation is reasonable too, with shares trading around their 10-year median. Read the full article.
Abbott Laboratories (ABT) reported better than expected results for the second quarter on July 20. Management raised its guidance for the remainder of 2011, prompting analysts to revise their estimates higher. This sent the stock to a Zacks #2 Rank (Buy). Abbott also pays a dividend that yields a very solid 3.7%. Valuation is attractive too with shares trading at just 10.9x forward earnings, well below the industry average. Read the full article.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
