Event: CSX reports Q2 results after the close and the options market is implying about a 4% one day move which is rich to their 4 qtr avg move of less than 1%.
Back in mid April, prior to their Q1 report I took a look at the stock:
Shares of CSX have bounced today off of support at $32, which is important technical support:
Analysts expect CSX to deliver 10% eps growth this year, the highest level since 2011, doubling that of the last three years, despite no sales growth year over year. If the company does not lower forward guidance, then the stock, trading 15x expected eps growth of 10%, would look cheap. Especially when you consider the 2% dividend yield and no exposure to the strength of the U.S. dollar.
Interestingly, investors didn’t seem too impressed with the results and the stock sold off 1% following, but the stock did eventually bounce hard off of $32 support, but has since come all the way back:[caption id="attachment_55311" align="aligncenter" width="600"] CSX 1yr chart from Bloomberg[/caption]
Analysts now expect CSX to grow earnings 4% in 2015, on a 2% decline in sales. The stock trades at 16x that expected growth, which is rich to historical averages given the recent ratchet down in growth expectations since April.
My View: CSX is down 11% ytd, which is a couple percent worse than the IYT (the iShares Transportation index). And to state the obvious, the stock acts very poorly in an economic environment that should be conducive to cyclical companies like transports. I suspect a miss is IN the stock here, but a material guide down and the stock is at $30. A beat and raise and the stock is at $34.50, right near its converging 50 and 200 day moving averages.
On a longer term basis the 5 year chart shows the latest leg lower causing a break of the uptrend that has been in place since late 2012. From purely a technical standpoint that is troubling:[caption id="attachment_55314" align="aligncenter" width="600"] CSX 5yr chart from Bloomberg[/caption]
As far as potential trade nothing sticks out as a great opportunity. Replacing the stock with a 32 call could make sense as you define your risk if the stock revisits 30 or worse breaks down below that. But that’s not an obvious play if the stock only declines slightly on the report but it does give you full upside participation (above the breakeven of the call) while protecting against disaster.