CSX Corp - Growth & Income

Earnings estimates have been surging since the company posted better-than-expected fourth quarter results. Valuation is attractive too, with the stock sporting a PEG ratio of 0.9.

Fourth Quarter Results

CSX reported fourth quarter earnings per share of $1.14, beating the Zacks Consensus Estimate by 4 cents. It was a 48% increase over the same quarter in 2009.

Adjusted revenue increased 14% year-over-year driven by a solid 7% increase in overall volume. This directly reflects the improvement in the U.S. economy. The automotive segment was particularly strong, with volume jumping 18%.

Meanwhile, operating income surged 46% as the company was able to leverage its fixed expenses.

Estimates Rising

Earnings estimates have been rising steadily over the last several months as the economy gains momentum. Take a look at the stair-step climb in 2011 consensus estimates:

The Zacks Consensus Estimate for 2011 is now $4.98, up from $4.71 before the most recent earnings surprise. This corresponds to 23% growth over 2010 EPS. The 2012 estimate is currently $5.74, up from $5.42, and equating to 15% EPS growth.

It is a Zacks #1 Rank (Strong Buy) stock.

Dividend Rising

CSX pays a dividend that yields 1.5%. The company cut its dividend back in 2001 and held it steady through 2005. Since 2005, however, it has raised it 8 times at an average annual rate of 32.5%.

Its payout ratio is still relatively low at 26%, so expect more dividend increases to come.

The company has also been spending its free cash flow on share buybacks. In Q4, for instance, it spent $347 million repurchasing 5.6 million shares.

Valuation

Although shares have risen nearly 50% since late August, valuation is still attractive because of rising earnings estimates.

Shares trade at 14.2x forward earnings, a discount to the industry average of 21.0x, and its PEG ratio is just 0.9.

Read the October 21 article here.

This Week's Growth & Income Zacks Rank Buy Stocks:

Blackrock, Inc. (BLK) recently delivered its third consecutive positive earnings surprise driven by higher assets under management. Earnings estimates have been surging since the latest earnings beat, sending the stock to a Zacks #1 Rank (Strong Buy). Read the full article.

Rockwell Collins, Inc. (COL) recently reported a solid first quarter in which earnings per share beat the Zacks Consensus Estimate by 10%. Management also raised its guidance for 2011, prompting analysts to revise their estimates higher. Rockwell generates strong free cash flow and has been using that cash to buy back its stock. It is a Zacks #2 Rank (Buy) stock. Read the full article.

IGate Corporation (IGTE) announced it was acquiring a majority stake in an Indian IT firm. Although investors are nervous about the move, earnings estimates continue to rise. This has led to an attractive valuation picture with shares trading well below industry multiples. Read the full article.

Patterson Companies, Inc. (PDCO) recently became a Zacks #2 Rank (Buy) stock as earnings estimates have been rising recently. Analysts are looking for high single-digit earnings growth over the next couple years, and the company also began paying a dividend in 2010. Read the full article.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
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