Norfolk Southern Corp.
) delivered positive earnings surprises in four out of the last
five quarters, outpacing the Zacks Consensus Estimate by an average
of 6.7%. Despite facing a steep decline in coal shipments, this
class 1 freight railroad operator has maintained profitability
thanks to strong operating efficiency and cost control measures.
Moreover, Norfolk Southern currently offers an attractive dividend
yield of 2.72%. With a long-term growth potential of 12.3%, this
Zacks #2 Rank (Buy) offers solid growth potential backed by
increased service abilities and heavy investment in key projects,
which lead to cost reduction and higher productivity.
A Mixed Quarter
On July 24, Norfolk Southern reported mixed financial results for
the second-quarter 2012. Earnings per share of $1.60 surpassed the
Zacks Consensus Estimate by 7 cents or 4.6% and beat the year-ago
earnings by 22 cents or 15.9%. Operating revenue of $2,874 million
increased 0.3% year over year but fell short of the Zacks Consensus
Estimate by 2.1%.
On a year-over-year basis, Coal revenues decreased 15.5% while
General Merchandise and Intermodal revenues grew 8.6% and 4.3%,
respectively. Operating income rose 6.7% year over year to $934
million. Fuel expenses dropped 5.3%. Operating ratio (a key metrics
for the transportation sector) improved 2% to a record high of
Earnings Estimates Climb
In the last 30 days, fourteen out of 25 estimates for 2012 moved
higher, lifting the Zacks Consensus Estimate by 1% to $5.98. This
implies year-over-year profit improvement of 14.1%. Norfolk
Southern also witnessed 10 of 25 estimates move higher for 2013,
lifting the Zacks Consensus Estimate by approximately 0.5% to
$6.64. This suggests year-over-year growth of 11.1%.
Solid Dividend Yield
Norfolk Southern has been paying dividends for 120 consecutive
quarters. On August 1, management raised its dividend rate by 6.4%.
Currently, the company offers a lucrative dividend yield of 2.72%,
significantly higher than the industry average of 1.93% and the
company's 5-year average yield of 2.40%.
Norfolk Southern currently looks attractive with respect to several
valuation metrics. The stock's forward P/E of 12.31x indicates a
huge discount of 32.3% from the peer group average of 16.28x.
Similarly, the stock's current P/B of 2.45x is at a 14.3% discount
to the peer group average of 2.80x and its current P/S of 2.11x is
also at a discount of 30.8x to the peer group average of 2.76x.
Norfolk Southern looks quite attractive given its trailing 12-month
ROE of 19.7x, which is 18.7% higher than the peer group average of
The chart below shows a secular positive price movement since June
2012, barring some minor pullbacks. The stock has been consistently
trading above its 50 and 200-day moving averages since June 25,
2012. Average volume also remains quite impressive at 1,860K. The
widening gap between the stock price line and that of the 50 and
200-day moving average lines show the potential future growth of
Norfolk Southern is poised to benefit from strong pricing momentum
on the back of growing demand for rail transportation. Pricing
improvement coupled with productivity gains will offset cost
inflation. A booming railroad industry, solid long-term growth
potential and a lucrative dividend yield make Norfolk Southern an
attractive pick for growth & income investors.
Headquartered in Norfolk, Virginia, Norfolk Southern Corp. was
founded in 1883. Currently, the company operates approximately
20,000 route miles of rail track in 22 states (predominantly in the
eastern part of the U.S.) and the District of Columbia. The company
is primarily engaged in the rail transportation of raw material,
intermediate products and finished goods. It also offers logistic
NORFOLK SOUTHRN (NSC): Free Stock Analysis
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