CSX Rides On Volume Growth & Lower Tax Rates Amid High Debt
Zacks Investment Research | Feb 28, 2019 08:22PM ET
We have issued an updated research report on CSX Corporation (NASDAQ:CSX) on Feb 28. While strong volume growth and lower tax rates buoy optimism on the stock, high debt levels are concerns.
Factors Influencing CSX’s Performance
The Jacksonville, FL-based company is gaining momentum on the back of volume growth and strong pricing. Improvement in operating ratio (operating expenses as a percentage of revenues) is an added positive. Lower value of the key metric bodes well for the company. Due to such improved operational efficiency, CSX expects to achieve operating ratio target of 60% in 2019 instead of 2020 expected earlier.
Moreover, the current tax law, which lowers corporate tax rate significantly, is a huge positive for CSX. The provision of the law, which facilitates capital expenses to be deducted in the year that incurred the same, is a huge positive for the company. For the first quarter of 2019, CSX expects effective tax rate between 24% and 24.5%.
Further, we are impressed by the company's efforts to reward shareholders in the form of dividend payments and buybacks. In February 2019, the company announced a 9.1% dividend hike to 24 cents per share. In January 2019, the board of directors cleared a new $5-billion share buyback program following early completion of the previous one. Also, adjusted operating cash flow increased 29% year over year in 2018 to nearly $4.7 billion. This reflects the company’s robust cash generating capabilities.
A glimpse of this Zacks Rank #3 (Hold) company’s price performance reveals that it has outperformed the Zacks Investment Research
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