On Mar 19, we upgraded our recommendation on Norfolk Southern Corp. (NSC) to Neutral from Underperform, owing to driving factors such as superior service and network capabilities, infrastructural investments, and accelerated growth in intermodal and merchandize segments on the back of strong freight pricing. However, several headwinds such as regulatory issues and competitive pressures along with the downturn in coal and crop markets will likely limit the upside potential over the near term. The transportation company holds a Zacks Rank #3 (Hold).
Why the Upgrade?
We believe that Norfolk Southern is well poised to benefit from strong pricing momentum owing to growing market demand and shortage in truckload transportation. We remain highly optimistic on the company’s growth across segments – Merchandize and Intermodal. In the coming months, higher shipments of crude oil, better conditions in the housing and construction markets as well as stability in the steel sector will continue to be the prime growth drivers for the Merchandize segment.
Going forward, consistent expansion prospects for highway conversion, new Intermodal service lanes, business opportunities with shipping partners across the globe and development of the premium market segment are expected to support Intermodal’s performance level. With a number of intermodal terminals under construction, the business prospects of the company look appealing. The opening up of these new terminals are expected to bring new additional business for the company and foster its expansion plans.
Other supporting factors Norfolk Southern – that operates along with Florida-based CSX Corp. (CSX) – include planned investment programs and various cost-saving initiatives. With a healthy financial profile and a commitment to enhance shareholders’ value, Norfolk Southern is likely to be preferred by investors.
Other Stocks to Consider
Other stocks worth considering within the sector are Canadian Pacific Railway Limited (CP) and Kansas City Southern (KSU) that hold a Zacks Rank #2 (Buy rating).
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