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Here's Why You Should Retain CSX Corporation (CSX) Stock Now

CSX Corporation (CSX) is benefiting from its solid liquidity as well as investor-friendly steps. However, escalating costs are worrisome.

Factors Favoring CSX

CSX’s cash and cash equivalents were $2,087 million at the end of 2022, much higher than the current debt of $151 million, implying that the company has sufficient cash to meet its current debt obligations.

The company’s commitment to reward its shareholders is encouraging. In February 2023 the company announced a 10% hike in its quarterly dividend to 11cents per share. In 2022, CSX rewarded shareholders roughly $5,583 million through buybacks ($4,731 million) and dividends ($852 million).In 2021, the company returned more than $3.7 billion to shareholders through buybacks ($2.9 billion) and dividends (over $800 million).

Key Risk

High costs due to an increase in labor and fringe expenses, purchased services and other, and fuel expenses are limiting CSX’s bottom line. In 2021, total expenses rose 11% year over year due to 12%, 24% and 69% increases in labor and fringe, purchased services and other, and fuel costs, respectively. In 2022, operating expenses increased 27% year over year, mainly due to 78% rise in fuel expenses.

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The cost hike in fuel was due to steep rise in highway diesel fuel prices as well as the addition of non-locomotive fuel used for trucking. Costs are likely to be high in the March quarter too.

Zacks Rank & Key Picks

CSX Corp currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Transportation sector are American Airlines (AAL) and United Airlines (UAL).

American Airlines, currently carrying a Zacks Rank #2 (Buy), is benefiting from the improved air-travel-demand situation. In the fourth quarter of 2022, AAL reported earnings of $1.17 per share, surpassing the Zacks Consensus Estimate by 2.63%.

For first-quarter and full-year 2023, AAL’s earnings are expected to register 100.4% and 332% growth on a year-over-year basis.

United Airlines, carrying a Zacks Rank #2 at present, is seeing steady recovery in domestic and leisure air-travel demand. On the back of upbeat air-travel demand, UAL was profitable in the fourth quarter of 2022. The fourth quarter was the third consecutive profitable quarter at UAL.

Driven by solid demand, management expects total revenue per available seat mile to grow 25% year over year for the first quarter of 2023. Total revenues are anticipated to grow 50% year over year. The Zacks Consensus Estimate for full-year 2023 earnings are expected to surge 227% year-over-year.

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CSX Corporation (CSX) : Free Stock Analysis Report

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American Airlines Group Inc. (AAL) : Free Stock Analysis Report

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