The Zacks Analyst Blog Highlights: CSX, Alpha Natural Resources, Walter Energy, Norfolk Southern and Genuine Parts Company

Oct 18, 2011, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Oct. 18, 2011 Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: CSX Corporation (NYSE: CSX), Alpha Natural Resources (NYSE: ANR), Walter Energy (NYSE: WLT), Norfolk Southern Corp. (NYSE: NSC) and Genuine Parts Company (NYSE: GPC).

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Here are highlights from Monday's Analyst Blog:

Earnings Preview: CSX Corp.

CSX Corporation (NYSE: CSX), one of the leading rail transportation companies, is slated to release its third quarter 2011 results on Tuesday, October 18, after the closing bell. The current Zacks Consensus Estimate for third quarter earnings per share is pegged at 44 cents, representing an annualized growth of 21.98%.

Second Quarter Flashback

CSX Corp.'s second quarter financial results surpassed the Zacks Consensus Estimate and remained above the year-ago level on strong pricing recovery.

Revenue also came in ahead of the Zacks Consensus Estimate and grew 13% year over year to $3.0 billion on improved pricing and modest volume growth.

Agreement of Estimate Revisions

Estimates for the third quarter have been indicating a downward trend over the last 7 and 30 days. Over the last 7 days, out of 23 analysts, one increased and 3 decreased their estimates. Over the last 30 days, only one analyst moved upward while six made downward revisions.

For fiscal 2011, out of 22 analysts, none made a positive revision in last 7 days but 3 moved south. Over the last 30 days, no change was registered on the positive side but 4 made negative revisions.

Similarly, for fiscal 2012, out of 25 analysts, 1 analyst increased and 5 decreased their estimates in the last 7 days. Further, 1 upward and 8 downward revisions were made over the last 30 days.

We believe that the downward trend reflects the negative sentiment of market over the railroad stocks given lower coal demand. A suggested decline in coal shipments (accounted for approximately 40% of total rail shipments) for the second half of the year by Alpha Natural Resources (NYSE: ANR) and Walter Energy (NYSE: WLT) in September spilled worries across the market. Further, the ongoing economic upheaval, affecting the pricing and volume trend also contributed to the downward revisions by most of the analysts.

Magnitude of Estimate Revisions

Over the last 7 and 30 days, the magnitude of the third quarter estimate revisions dropped by a penny to 44 cents.

For fiscal 2011, the Zacks Consensus Estimate remained static at 46 cents over the last 7 and 30 days.

For fiscal 2012, the Zacks Consensus Estimate regressed by a penny over the last 7 days and dropped 2 cents in last 30 days.

Earnings Surprises

With respect to earnings surprise, over the trailing four quarters, CSX Corp. outperformed the Zacks Consensus Estimate at 3.37% on average.

The current Zacks Consensus Estimate for the ongoing quarter contains a 2.27% downside risk. Similarly, for fiscal 2011 and 2012, the Zacks Consensus Estimates' downside risk is measured at 0.59% and 1.53%, respectively.

Our Recommendation

Although CSX's strong performance in the second quarter was supported primarily by pricing improvement compared to volume growth, we remain concerned about near-term headwinds related to coal demand. Further, the company's capital intensive nature and unionized workforce, increased competition as well as strict railroad regulation and stiff competition from railroads like Norfolk Southern Corp. (NYSE: NSC) also keep us on sidelines.

Hence,  we maintain our long-term Neutral recommendation on CSX Corp. However, the stock holds a short-term (1-3 months) Zacks #4 Rank (Sell).

Earnings Preview: Genuine Parts Co.

Genuine Parts Company (NYSE: GPC) announced that it would release its results for the third quarter of 2011 before the market opens on October 18, 2011.

Atlanta, Georgia-based Genuine Parts realized earnings per share of 96 cents in the second quarter, which was wider than the Zacks Consensus Estimate of 89 cents. In the upcoming quarter, the Zacks Consensus Estimate for Genuine Parts is pegged at a profit of 95 cents per share, reflecting an annualized growth of 14.06%. There is no upside potential for the current estimate.

With respect to earnings surprises, the company outdid the Zacks Consensus Estimate in the trailing four quarters. This is reflected in the average earnings surprise of 7.37%, implying that the company has beaten the Zacks Consensus Estimate in each of the last four quarters.

Second Quarter Recap

Genuine Parts reported a 22% rise in profit to $151.8 million in the second quarter of 2011 from $124.5 million in the year-ago quarter. Earnings per share in the reported quarter were 96 cents, up 23% from 78 cents delivered in the comparable quarter last year. Quarterly EPS also surpassed the Zacks Consensus Estimate by 7 cents.

Total sales in the quarter grew 12% to $3.18 billion, exceeding the Zacks Consensus Estimate of $3.12 billion, driven by improvements across all its businesses and favorable conditions in the aftermarket. Operating profit also increased 18% to $264.6 million, despite a rise in selling, general and administrative expenses (SG&A). SG&A increased 9% to $651.6 million during the quarter.

Sales in the Automotive Parts segment grew 9% to $1.59 billion, the Industrial Parts segment rose 19% to $1.05 billion, the Office Products Group expanded 4% to $418.0 million and the Electrical segment soared 28% to $136.8 million.

Genuine Parts had cash and cash equivalents of $516.7 million as of June 30, 2011 compared with $411.9 million in the corresponding period a year ago. Long-term debt reduced to $250 million at the end of the reported quarter versus $500 million in the prior-year quarter.

During the first six months of 2011, Genuine Parts' net cash flow from operations declined to $250 million from $352.5 million in the prior-year quarter, despite higher profit. This was primarily attributable to an increase in excess tax benefits from share-based compensation. Meanwhile, capital expenditures increased to $27.2 million from $18.1 million in the second quarter of 2010.

Estimate Revisions Trend

Earnings estimate for the third quarter of 2011 is currently pegged at a profit of 95 cents per share. The analysts are confident about the company given its various initiatives and strong balance sheet.

Agreement of Estimate Revisions

Out of the 6 analysts covering the stock for the third quarter, none has either upgraded or downgraded the stock in the past 30 days.

Magnitude of Estimate Revisions

Following the first quarter earnings release in July, third quarter earnings per share were projected at 94 cents. However, over the last 7 days, the earnings estimate has increased to and remained at 95 cents.

Our Take

Genuine Parts has undertaken various initiatives to boost sales and earnings, such as product line expansion, penetration into new markets and cost-saving activities. The company relies on a diverse product portfolio for top-line and bottom-line growth.

In the Automotive Parts segment, the company expects growth of 2%–5% per year in the future, with NAPA representing about 10% of the market. Demand should remain strong as the average age of vehicles on the road has risen to almost 10 years.

However, lower consumer confidence is thwarting Genuine Parts' efforts to drive sales growth in its Automotive Parts segment. Moreover, it has been unable to institute meaningful price hikes in its automotive business due to pressure from retailers. These can hamper its margins going forward.

Taking into account the above conditions, we have a long-term Neutral recommendation on the stock.

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