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Why Investors Should Buy Norfolk Southern (NSC) Stock Now

·4 min read

Norfolk Southern Corporation NSC is a stock that investors may consider adding to their portfolio with its strong free cash flow generating ability lending support to its shareholder-friendly activities. Improvement in total revenues, driven by its key segments, further strengthens NSC’s case as an attractive investment option despite high fuel costs hurting the bottom line.

Against this backdrop, let’s give an in-depth look at the factors that make this stock an attractive pick.

Northward Estimate Revisions: The Zacks Consensus Estimate for current-quarter earnings has been revised 2.65% upward over the past 60 days. For 2022, the consensus mark for earnings has moved 1.53% north in the same time frame. The favorable estimate revisions reflect brokers’ confidence in the stock.

Given the wealth of information at their disposal, it is in the best interest of investors to be guided by brokers' advice and the direction of their estimate revisions. This is because the movement of estimate revisions serves as an important pointer when it comes to ascertaining a stock price.

Positive Earnings Surprise History: Norfolk Southern has an encouraging earnings surprise history. Earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average being 5.19%.

Solid Rank & Style Score: Norfolk Southern currently has a Zacks Rank #2 (Buy). NSC’s Momentum Style Score of B highlights its short-term attractiveness. Moreover, NSC currently has a VGM score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank of 1 or 2, offer the best investment opportunities.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shareholder-Friendly Attitude a Tailwind: Despite coronavirus-related woes, Norfolk Southern is committed to rewarding its shareholders.  In 2021, NSC rewarded its shareholders to the tune of $4,418 million through dividends ($1,028 million) and share buybacks (3,390 million). During the first quarter of 2022, NSC paid out dividends worth $297 million, up 19.3% year over year. NSC repurchased and retired common stock worth $600 million in the March quarter compared with $591 million a year ago.

In January 2022, NSC’s board announced a 14% increase in its quarterly dividend payout. This was the third dividend hike announced by the railroad operator in a year’s time. Norfolk Southern's strong free cash flow generating ability supports its shareholder-friendly activities. In 2021, NSC generated free cash flow to the tune of $2,785 million, up 30% year over year. In first-quarter 2022, free cash flow was $605 million. NSC expects the current-year dividend payout ratio in the 35-40% range. Management expects to utilize the remaining cash flow and financial leverage to repurchase shares.

Total revenues are expected to increase in the upper single digit (in percentage terms) in 2022 from the 2021 levels. The intermodal and merchandise segments are expected to be the main levers.

Other Stocks to Consider

Investors interested in the Zacks Transportation sector may also consider C.H. Robinson Worldwide CHRW and Eagle Bulk Shipping EGLE, currently sporting a Zacks Rank #1.

The expected long-term (three-to-five years) earnings per share growth rate for C.H. Robinson is pegged at 9%. Improving freight market conditions are aiding CHRW.

In first-quarter 2022, the top line surged 41.8% owing to favorable truckload pricing for customers and handsome profits in ocean freight. Efforts to reward its shareholders also bode well.

Improved market sentiments surrounding the Drybulk market are aiding the Eagle Bulk Shipping stock. EGLE owns one of the largest fleets of Supramax/Ultramax ships, globally. Efforts to upgrade its fleet also bode well.

EGLE’s shares have gained 4.2% in a year’s time. Over the past 60 days, the Zacks Consensus Estimate for 2022 earnings has moved 11.75% north.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Norfolk Southern Corporation (NSC) : Free Stock Analysis Report
C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report
Eagle Bulk Shipping Inc. (EGLE) : Free Stock Analysis Report
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