Norfolk Southern's Operational Turnaround To Drive Over 20% EPS Growth Through 2027, Analyst Says
Written by Emily J. Thompson, Senior Investment Analyst
Updated: May 23 2024
0mins
Source: Business Insider
- Analyst Upgrade: RBC Capital Markets analyst upgraded Norfolk Southern Corporation to Outperform from Sector Perform with a price target of $270.
- Bullish Stance: The upgrade is based on expected significant improvement in operating ratio and subsequent meaningful EPS growth.
- Investment Opportunity: Analyst sees the company as an attractive investment opportunity due to operational turnaround and outperforming EPS growth.
- Financial Projections: Spracklin estimates EPS CAGR of +20% 2024-27 and a 12.6ppt improvement in operating ratio by 2027.
- First Quarter Performance: Norfolk Southern reported a 4% Y/Y decline in first-quarter railway operating revenue, missing consensus estimates.
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Analyst Views on NSC
Wall Street analysts forecast NSC stock price to fall
13 Analyst Rating
5 Buy
8 Hold
0 Sell
Moderate Buy
Current: 320.220
Low
297.00
Averages
316.56
High
340.00
Current: 320.220
Low
297.00
Averages
316.56
High
340.00
About NSC
Norfolk Southern Corporation is a holding company engaged in the rail transportation business. The Company is engaged in the rail transportation of raw materials, intermediate products, and finished goods in the Southeast, East, and Midwest and, via interchange with rail carriers, to and from the rest of the United States. It also transports overseas freight through several Atlantic and Gulf Coast ports. It offers an intermodal network in the eastern half of the United States. Its railroad operations system reaches various manufacturing plants, electric generating facilities, mines, distribution centers and transload facilities. It serves various industries such as agriculture, forest and consumer products, automotive, chemicals, and metals and construction. Its coal franchise supports the electric generation market, directly serving over 18 coal-fired power plants, as well as the export, domestic metallurgical, and industrial markets, through direct rail and river, lake, and coastal.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Cost Improvement: The significant drop in diesel prices typically enhances operating margins for LTL trucking, while rail, which also uses large volumes of diesel, experiences a similar but slightly smaller benefit, alleviating operational pressures in a cost-sensitive environment.
- Market Volatility: Old Dominion's stock has seen 12 moves greater than 5% over the past year, and today's increase indicates that the market considers this news significant, although it does not fundamentally alter perceptions of the business, highlighting sensitivity to oil price fluctuations.
- Long-Term Investment Returns: With a 36.2% increase since the beginning of the year, Old Dominion's shares are currently priced at $216.79, close to the 52-week high of $224.42, demonstrating strong performance in long-term investments, as a $1,000 investment five years ago would now be worth $1,651.
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- M&A Activity: Amid the merger between Norfolk Southern and Union Pacific, CSX is actively pursuing strategic partnerships, recently establishing a nationwide collaboration with BNSF, enhancing its competitive position in the market.
- Optimistic Industry Outlook: The transport sector has surged 43% over the past 12 months, significantly outperforming the S&P 500's 29%, highlighting the industry's importance and potential in the economic recovery.
See More
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- Merger Application Resubmission: The companies formally resubmitted their merger filing last month, aiming to create America's first transcontinental railroad, which is expected to deliver greater-than-anticipated benefits for shippers and consumers, thereby enhancing market competitiveness.
- Regulatory Expectations: The companies anticipate regulatory approval in early 2027 if their revised application addresses the Surface Transportation Board's concerns, laying a foundation for future business growth.
- Market Impact: Trump's mention of potential government equity in the railroad merger may influence market perceptions of the deal, particularly against the backdrop of increasing government intervention in large corporations.
See More
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- Historic Moment: On May 10, 1869, the Central Pacific and Union Pacific railroads held a historic golden spike ceremony at Promontory Summit in Utah, marking the completion of the transcontinental railroad, which significantly shortened the time for settlement and commerce in the West.
- Rail Network Integration: Union Pacific and Norfolk Southern plan to merge to create a single rail network covering 50,000 route miles across 43 states, aiming to eliminate handoffs in freight transport, thereby enhancing efficiency and reducing costs.
- Industry Impact: If regulators approve the deal, the single-line freight service will provide seamless coast-to-coast connectivity, expected to significantly disrupt both the rail and trucking industries, potentially lowering transportation costs and intensifying market competition.
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