Weak Industry Fundamentals See NSC Fall 22.5% since January
Norfolk Southern Expects a Rebound in 2016 after a Tough 2015
Weak commodity prices shadow railroads’ return
Railroad companies’ activities are a proxy for economic health. The demand turmoil in energy-related commodities have pushed the prices southward in the recent past. Rails move more than two-thirds of coal in the United States and transport notable bulk shipments of cars, grains, and chemicals.
According to the World Coal Association, the United States is the fourth-largest coal exporter in the world. The shift from coal-fired power plants to other energy sources, stringent regulations, environmental concerns, and falling crude oil have taken their toll on coal prices.
All Class I rail stocks in the United States such as Norfolk Southern (NSC), CSX (CSX), Canadian Pacific Railway (CP), Canadian National Railway (CNI), Union Pacific Railway (UNP), and Kansas City Southern (KSU) fared poorly in 2015.
Norfolk Southern in 2015
Norfolk Southern’s main subsidiary Norfolk Southern Railway Company owns and operates ~20,000 miles of railroad in 22 states and the District of Columbia. The company is a major transporter of coal, automotive, and industrial products. NSC also runs an intermodal network that competes with trucking companies. You can get more information on the company by visiting at Market Realist’s Norfolk Southern Corporation overview.
NSC’s YTD (year-to-date) revenues and earnings per share were down by 10% and 18%, respectively. Investors should note that stock price movement is also a function of revenue growth. Even though the Industrial Select Sector SPDR ETF (XLI), which holds 7.8% in the peer group and 1.7% in NSC, has fallen 5.5%, Norfolk Southern has fallen by 22.5% since January 2015.
Peer group returns
CSX is the main competitor of NSC, since both play in the same territory. The YTD stock price performances of NSC’s peers is as follows:
CSX fell by 28.5%
CP fell by 33.9%
CNI fell by 18.0%
KSU fell by 39.1%
UNP fell by 34.1%
The nine-month 2015 revenues for NSC included 17% from coal, 60% from general merchandise, and 23% from intermodal. In 2015, revenues from all segments trembled, with coal shouldering the largest fall. In this series, we’ll analyze NSC and discuss whether it will be able to overcome the laggards in coal and other businesses amid weak railroad industry fundamentals in 2016.
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