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Here's Why Norfolk Southern is a Must-Add to Your Portfolio

Zacks Equity Research

Norfolk Southern Corporation NSC seems to be a promising stock at the moment, backed by numerous tailwinds like volume growth and the precision scheduled railroading model.

Robust volume growth has been boosting the company’s performance. Notably, volumes expanded 4% in 2018 owing to impressive performances at its key divisions. Driven by this tailwind, the company outshined the Zacks Consensus Estimate in each of the trailing four quarters, the average being 8.1%. Given the healthy economic scenario, volume growth is anticipated to aid the company’s first-quarter 2019 results as well.

Moreover, the company has been making consistent efforts to streamline its operations in order to increase productivity. To this end, it implemented the precision scheduled railroading model earlier this year. With increased efficiencies and reduced costs from the precision scheduled railroading model, the company predicts operating ratio (operating expenses as a percentage of revenues) to improve at least 100 basis points in the current year compared with 65.4% achieved in 2018.

Additionally, the company targets a full-year operating ratio of 60% by 2021. Further, revenues are anticipated to witness a compound annual growth rate of 5% through 2021.

Norfolk Southern’s measures to reward shareholders through dividends and share repurchases are also encouraging. The company returned more than $3.6 billion to shareholders in 2018 via dividends ($844 million) and buybacks ($2,781 million). Moreover, this January, it raised its quarterly dividend by 7.5% to 86 cents a share. This marks the company’s third dividend hike in the last 10 months. During the first quarter of 2018, the company hiked its dividend by 18% to 72 cents per share. This amount was further raised 11% last July.

Surrounded by this positivity, shares of the company have rallied 25% so far this year, outperforming the industry’s 20.8% increase.

Year-to-Date Price Performance


 

The stock has seen the Zacks Consensus Estimate for the company’s first-quarter 2019 earnings being revised 2.3% upward in the last 90 days, which further highlights the optimism revolving around the stock.

The above pointers as well as the company’s Zacks Rank #2 (Buy) clearly indicate the stock is worth adding to investors’ portfolios now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Key Picks

Some other top-ranked stocks in the broader Transportation sector are Azul AZUL, Fly Leasing Limited FLY and SkyWest, Inc. SKYW, each sporting a Zacks Rank #1.

Each of the companies boasts a commendable earnings history. While Fly Leasing and SkyWest surpassed estimates in all the trailing four quarters, Azul outperformed the same in three of the last four quarters.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.

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SkyWest, Inc. (SKYW) : Free Stock Analysis Report
 
Fly Leasing Limited (FLY) : Free Stock Analysis Report
 
Norfolk Southern Corporation (NSC) : Free Stock Analysis Report
 
AZUL SA (AZUL) : Free Stock Analysis Report
 
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