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Here's Why Investors Should Retain CSX Amid Risks

On Jun 29, 2017, we issued an updated research report on Jacksonville, FL-based, CSX Corp. CSX. Over the past three months, the stock price of the company has inched up 15.62%, outperforming the Zacks categorized Transportation-Rail industry’s gain of 7.36%.

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

CSX is a leading provider of rail, container-shipping, intermodal and logistics services. It is benefiting from a recent improvement in the coal-related scenario, which has been aiding overall volume growth. The company is also putting in notable efforts to control costs. Volume growth is expected in the second quarter as well. Driven by improved efficiencies, the company expects the bottom line to expand 25% in 2017 on a year-over-year basis.

CSX announced 11% dividend hike earlier this year in its quarterly dividend payout. Following the announcement, the new quarterly dividend is an impressive $0.20 per share. It is to be noted that the company’s dividend has increased 13 times since 2005.

In Mar 2017, the company announced, that it has inked a deal with Paul Hilal's Mantle Ridge hedge fund. As part of the agreement, CSX appointed E. Hunter Harrison as its chief executive officer (CEO). Harrison had served as CEO for fellow railroad operator Canadian Pacific Railway Limited CP as well. The appointment is discreet as CSX remains focused on improving its fortunes. In a shareholder-friendly move, the company’s board cleared a new $1 billion share buyback program. Management expects to complete the new program by Mar 31, 2018.

However, CSX’s high debt levels raise concerns. Moreover, the company continues to face challenges from a strong U.S. dollar which might impact its bottom line. 

Stocks to Consider

Investors interested in the railroad space may also consider Alstom ADR ALSMY carrying a Zacks Rank #2 (Buy). Investors interested in the broader transportation space may also consider United Continental Holdings UAL, which also carries Zacks Rank #2 (Buy).

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