Norfolk Southern Corporation
) one of the leading railroads in North America has announced an
investment plan of $2 billion for 2013. The investment plan will
focus mostly on building infrastructure, equipment and technology
that will drive safety and quality service for the rail. Over the
long term, we believe these investments will support the
company's growth goal by enhancing productivity measures and
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The largest share of this investment will be directed toward
track improvements, which will cost around $831 million.
Locomotives spending would be around $420 million and investment
in Positive Train Control (PTC) is estimated around $229 million.
In addition, technology investments, involving upgrading systems
and computers to enhance safety measures and operational
efficiency, would be around $57 million.
Further, investments in Intermodal terminals of approximately
$203 million will involve a multi-year expansion project of
Bellevue rail yard in Northern Ohio terminal constructions at
Charlotte, N.C., a new facility construction for locomotives in
Conway, Pa. and construction of bulk transfer facilities.
The company is building numerous intermodal terminals including
Heartland Corridor (to reduce transit time from East coast port
to Midways), Crescent Corridor (from Boston to Austin), Patriot
Corridor (to improve service in New England), Meridian Speedway
(shortest, fastest reefer trailer service from West Coast to
Atlanta), and MidAmerica Corridor (long-term potential for the
Chicago-Florida route) in order to expand its existing network.
Among these, the Crescent Corridor, designed to compete with the
high density-trucking lane along Interstate-81 will likely be
completed by 2013.
Looking ahead, the opening of these new terminals is expected to
bring new additional business for the company. The completion of
the Panama Canal and expansion of intermodal facility at
Rutherford by 2014, along with the ongoing project at the West
Coast ports will help to gain market share of international
container traffic from the West to the East. We believe
these long-term infrastructural developments will have positive
impacts on the company's growth prospects and ultimately draw
However, the main drawback that these investments carry is their
near-term implications over the company's financials. Given the
capital-intensive nature and industry-specific requirements of
the rail industry, railroads have to resort to heavy capital
expenditure for maintenance as well as expansion of their
businesses. These capital expenditures draw out significant cash
flows impairing near-term profitability of the company, which we
believe is a significant headwind given the current economic
Besides Norfolk, other companies' that have disclosed their
capital investment plans include
Union Pacific Corporation
). In 2013, Union Pacific plans investment of approximately $3.6
billion, down from $3.7 billion in 2012 and CSX Corporation would
spent approximately $2.3 billion, up from $2.2 invested in 2012.
Another stock worth considering within the sector is
Genesee & Wyoming Inc
) that holds a Zacks Rank #1 (Strong Buy rating).
Currently, Norfolk Southern has a Zacks Rank #3 (Hold) .