On Oct 3, we maintained our Neutral recommendation on
Norfolk Southern Corp.
) owing to driving factors such as superior service and network
capabilities, infrastructural investments, and accelerated growth
in the Intermodal and Merchandize segments on the back of strong
However, several headwinds such as regulatory issues and
competitive pressures along with the downturn in coal markets
will likely limit the near-term upside potential. The
transportation company holds a Zacks Rank #3 (Hold).
We believe that Norfolk Southern is well poised to benefit
from strong pricing momentum owing to growing market demand and
shortage in truckload transportation. We remain highly optimistic
on the company's growth across Merchandize and Intermodal.
In the coming months, higher shipments of crude oil and better
conditions in the housing and construction markets will continue
to be the prime growth drivers for the Merchandize segment.
Additionally, increased volume of soybean and corn in Agriculture
along with frac sand in the Metals and Construction sector will
provide modest revenue opportunities for Norfolk Southern during
the second half of 2013.
Going forward, consistent expansion prospects for highway
conversion, new Intermodal service lanes, and business
opportunities with shipping partners across the globe are
expected to support Intermodal's performance level. With a number
of intermodal terminals under construction, the business
prospects of the company look bright once these open.
However, soft coal demand in the south and high inventory
levels built from 2012 remain the deterrent to growth in its coal
business. Weakening of Australian currency and lower benchmark
met coal prices remain other near-term concerns.
Norfolk Southern faces intense competition from motor carriers
and railroads, and substantial competition from ships, barges and
pipelines. The company's primary competitor is
), which operates within the same territory as Norfolk
Other Stocks to Consider
Other stocks worth considering within the sector are American
Railcar Industries Inc.
) with a Zacks Rank #1 (Strong Buy).
AMER RAILCAR (ARII): Free Stock Analysis
CSX CORP (CSX): Free Stock Analysis Report
NORFOLK SOUTHRN (NSC): Free Stock Analysis
AMERCO INC (UHAL): Get Free Report
To read this article on Zacks.com click here.