Featuring CSX from the Growth & Income Portfolio - Growth & Income

As the U.S. economy continues to recover and more goods are shipped, railroad companies like CSX Corp (CSX) continue to soar.

CSX has put together an impressive string of 7 consecutive positive earnings surprises. Although shares have climbed more than 40% since late August, valuation remains attractive due to a corresponding rise in earnings estimates.

Third Quarter EPS Up 48%

The company reported excellent third quarter results in late October. Total revenue increased 16% year-over-year driven by an overall volume gain of 10%. The company saw volume growth in nearly every market as the economy continued to improve. Growth was particularly strong in its automotive segment as vehicles sales improved significantly in the U.S.

Operating leverage helped CSX turn its 16% revenue increase into a 39% increase in operating income. Lower interest expense and fewer shares outstanding drove earnings per share up 48% to $1.08 in the third quarter. That beat the Zacks Consensus Estimate 4%.

Positive Outlook

Analysts continue to raise their estimates for CSX as the U.S. economy improves and the company delivers strong results.

The 2010 Zacks Consensus Estimate is $4.04, corresponding to 41% growth over 2009 EPS. The 2011 estimate is 18% higher at $4.76. It is a Zacks #3 Rank (Hold) stock.

The company reports its results for the fourth quarter and full year 2010 on January 24, 2011.

Solid Fundamentals

After holding its dividend steady for a few years, CSX has increased it 8 times since 2005 at an average annual clip of 39%. The stock currently yields 1.5%.

Shares have soared more than 40% since late August.

Valuation still remains attractive, however, because of a corresponding rise in earnings estimates. Shares trade at 14.5x forward earnings, a discount to the industry average of 21.5x, and its PEG ratio is just 0.9.

CSX Corp is headquartered in Jacksonville, Florida. It has a market cap of $25.6 billion.

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

 
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