Norfolk Southern NSC is bolstered by its shareholder-friendly approach. The company’s efforts to reduce greenhouse gas emissions are praiseworthy. However, Norfolk Southern is grappling with a surge in operating expenses.
Factors Favoring NSC
NSC's "Forging a Better Tomorrow" initiative, outlined in its inaugural Climate Transition Plan, aims for a 42% reduction in greenhouse gas emission intensity by 2034. Key performance indicators include improving locomotive fuel efficiency by 13% by 2027, increasing renewable energy usage to 30% by 2030 and aiming for 20% consumption of low-carbon fuels by 2034. In the first quarter of 2024, fuel expenses fell by 10% year over year.
In the first quarter of 2024, Norfolk Southern made significant strides in efficiency and operational enhancement. The company achieved an impressive 8% increase in car miles compared to the first-quarter 2023 figures and reduced recrews by 22% as network and terminal improvements enhanced main line fluidity.
NSC is reviewing the entire train service plan in order to drive core rationalization in the range of 4%. These efforts underscore Norfolk Southern’s commitment to continuous improvement and operational excellence in the railway sector.
The company’s commitment to reward its shareholders through dividends and buybacks is encouraging. In the second quarter of 2024, NSC paid out a quarterly dividend of $1.35 per share to its shareholders, marking it to be its 167th consecutive quarterly dividend since 1982.
Key Risks
Weak freight conditions are severely impacting Norfolk Southern’s top line. Inflation-related woes have brought about a reduction in consumer demand for goods, in turn affecting freight volumes hauled by rail. The top line is further hindered by the below-par performances of all three key segments, namely Merchandise, Intermodal and Coal.
The northward movement in operating expenses is adversely impacting NSC’sbottom line. In the first quarter of 2024, the total operating expenses increased by 15% year over year. This surge in operating expenses was primarily driven by the rise in labor costs.In the first quarter of 2024, labor costs, comprising salaries and benefits (accounting for 26.4% of the total operating expenses), rose by 7% year over year.
Norfolk Southern exited the first quarter of 2024 with a current ratio (a measure of liquidity) of 0.68. A current ratio of less than 1 indicates that the company is likely to struggle to meet its short-term obligations.
Shares of NSC have declined 5.1% in the past year compared with its industry’s drop of 1.5% in the same period.
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Zacks Rank
Norfolk Southern currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include SkyWest SKYW and Air Lease AL.
SKYW currently sports a Zacks Rank #1 (Strong Buy) and has an expected earnings growth rate of 787% for the current year.
SKYW has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 128%. Shares of SkyWest have jumped 101% in the past year.
AL sports a Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank stocks here. Air Lease has an expected earnings growth rate of 31.1% for the current year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missing once. The average beat is 15.6%. Shares of AL have climbed 11% in the past year.
Norfolk Southern Corporation (NSC) : Free Stock Analysis Report
Air Lease Corporation (AL) : Free Stock Analysis Report
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
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