CSX Gets Mired in Headwinds: Discard the Stock Right Now

CSX Corporation CSX is plagued by the disappointing performance of its intermodal segment. Due to sluggish volumes, intermodal revenues have declined over the last two quarters. While segmental revenues decreased 5% in the first quarter, the same dropped 11% in the second. In fact, this affected the second-quarter performance as well with the company reporting lower-than-expected earnings and revenues in the period.

What’s worse is that the dismal scenario is likely to persist through the remainder of 2019. Evidently, soft Intermodal volumes as well as factors like weak domestic coal demand and an adverse impact on crude-by-rail volumes as a result of the refinery explosion in Philadelphia in June, forced the company to provide a dull outlook for 2019 revenue growth. CSX now anticipates the top line to decline in the 1-2% range year over year in 2019, compared with an improvement in low-single digits expected previously. Notably, last year saw 7% top-line growth year over year.

CSX’s high debt levels amid the slowdown further aggravate the worries. As of Jun 30, 2019, the company’s long-term debt was $15,522 million compared with $14,739 million at 2018 end. Also, its debt-to-equity ratio is more than 100% compared with 83.8% for the S&P 500, of which CSX is a key member. A high debt-to-equity ratio implies that the company is funding most of its ventures with debt.

Surrounded by the negativity, the Zacks Consensus Estimate for CSX’s current-quarter earnings has moved 8.2% south over the last 60 days. The same for full-year earnings has been revised 4.6% downward.

Moreover, shares of the company have gained only 5.2% so far this year, underperforming its industry’s 19% increase.

Amid the pessimism, we believe, investors would do best to scrap the CSX stock from their portfolios now. The company’s Zacks Rank #4 (Sell) substantiates our statement.

Key Picks

Some better-ranked stocks in the broader Transportation sector are Delta Air Lines, Inc. DAL, Copa Holdings, S.A. CPA and GATX Corporation GATX. While Delta and Copa sport a Zacks Rank #1 (Strong Buy), GATX carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Delta, Copa and GATX have gained more than 16%, 31% and 7% on a year-to-date basis, respectively.

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