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Norfolk Southern Up 29% in a Year: What's Behind the Rally?

Zacks Equity Research

Shares of Norfolk Southern Corporation NSC have fared well in a year’s time, despite headwinds like high debt levels. The stock has gained 28.7% compared with the industry’s 14.4% growth.

One-Year Price Performance

 

Reasons for Impressive Price Performance

In April, this Norfolk, VA-based rail transportation company reported impressive first-quarter 2019 results, regardless of headwinds like inclement weather in the United States. Earnings per share came in at $2.51, which outpaced the Zacks Consensus Estimate of $2.17 and also surged 30.1% year over year. Additionally, the company came up with an average trailing four-quarter earnings beat of 9.7%.

Railway operating revenues in the first quarter totaled $2,840 million, above the Zacks Consensus Estimate of $2,800.9 million. Moreover, the top line rose 4.5% year over year owing to an increase in revenue per unit and higher fuel surcharge revenues.

Furthermore, Norfolk Southern is making constant efforts to streamline operations for increasing productivity. The company aims to lower costs to drive the bottom line. In line with its efforts to improve efficiencies, the company reported an improvement in operating ratio (operating expenses as a percentage of revenues) in the first quarter. For 2019, it predicts operating ratio to improve at least 100 basis points compared with 65.4% recorded in 2018.

The company’s consistent focus on rewarding shareholders in the form of share repurchases and dividends is an added positive. In 2018, Norfolk Southern returned more than $3.6 billion through dividends ($844 million) and buybacks ($2,781 million). It also generated free cash flow worth $1.8 billion in the same period. In the first quarter, the company returned $730 million to its shareholders through dividends ($230 million) and buybacks ($500 million), reflecting a 45% year-over-year increase. Moreover, free cash flow amounted to $414 million in the quarter.

For 2019 earnings, the Zacks Consensus Estimate moved up 3.9% over the past 60 days.

Zacks Rank & Key Picks

Norfolk Southern carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the broader Transportation sector are SkyWest SKYW, GATX Corp. GATX and CSX Corp. CSX, each carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of SkyWest have surged more than 34% so far this year. Meanwhile, GATX and Trinity flaunt an encouraging earnings history. While GATX outperformed the Zacks Consensus Estimate in each of the trailing four quarters, CSX surpassed estimates in three of the preceding four quarters.

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