CSX Down 7.6% Since Earnings Report: Can It Rebound?

It has been a month since the last earnings report for CSX Corporation CSX. Shares have lost about 7.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Third Quarter Earnings

CSX reported third-quarter 2017 earnings of 51 cents per share, in line with the Zacks Consensus Estimate. Quarterly earnings came in 6.3% higher than the year-ago figure.

Revenues of $2,743 million missed the Zacks Consensus Estimate of $2,769.4 million. However, the figure improved 1.2% year over year owing to core pricing gains. Overall volumes also inched up 1% year over year.

Also, third-quarter operating income (on a reported basis) improved 4% year over year to $876 million. While the operating ratio (operating expenses as a percentage of revenues) reportedly improved 90 basis points to 68.1%, operating expenses remained flat year over year to $1,867 million.

Adjusted operating income in the third quarter was $877 million. On an adjusted basis, the operating ratio for the reported quarter was 68%.

Driven by improved efficiencies, CSX expects the bottom line to expand between 20% and 25% in 2017 on a reported basis over 2016 levels. Operating ratio in the high end of mid-60s is expected in 2017. The company expects free cash flow before dividends (excluding restructuring costs) of around $1.5 billion in 2017.

Segmental Performance

Merchandise revenues slipped 3% year over year to $1,688 million in the quarter.

Coal revenues rose 10% year over year to $514 million owing to 5% expansion in volumes.

Intermodal revenues improved 5% year over year to $446 million. On a year-over-year basis, volumes expanded 5%.

Other revenues grossed $95 million, up 23% year over year.

Liquidity & Buyback

The company exited the third quarter with cash and cash equivalents of $591 million compared with $603 million at the end of 2016. Long-term debt totaled $11,788 million compared with $10,962 million at the same time around.

For the period ending Sep 30, 2017, net cash provided by operating activities was$2,861 million compared with $2,488 million in the year-ago period. During the third quarter, the company completed a $1.5 billion share repurchase program, announced in April and expanded in July.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downside. There have been six moves lower in the last two months.

CSX Corporation Price and Consensus

 

CSX Corporation Price and Consensus | CSX Corporation Quote

VGM Scores

At this time, CSX's stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
CSX Corporation (CSX) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.