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Volumes Hurt Norfolk Southern (NSC) Amid Strong Liquidity

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We recently issued an updated report on Norfolk Southern Corporation (NSC - Free Report) .

The company has been hit by the coronavirus outbreak primarily since February. Notably, overall volumes declined 7% in the first nine months of 2020 with volumes declining 15%, 9% and 41%, in the merchandise, intermodal and coal segments, respectively.

Moreover, weakness in the coal segment due to low natural gas prices and unfavorable weather conditions is a concern. Persistently low natural gas prices and unfavorable crude oil spreads are other headwinds.

Meanwhile, Norfolk Southern’s liquidity position is encouraging. The company exited the third quarter of 2020 with cash and cash equivalents of $1,359 million, higher than the current debt figure of $89 million. This implies that it has enough cash to meet its current debt obligations.

Additionally, its current ratio (a measure of liquidity) at the end of the September quarter stood at 1.29, higher than the June quarter's reading of 1.21. Moreover, efforts to control costs, courtesy of the precision scheduled railroading plan, are encouraging.

Zacks Rank & Stocks to Consider

Norfolk Southern currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Transportation sector are Knight-Swift Transportation Holdings Inc. (KNX - Free Report) , Landstar System, Inc. (LSTR - Free Report) and Herc Holdings Inc. (HRI - Free Report) . Landstar and Knight-Swift carry a Zacks Rank #2 (Buy), while Herc Holdings sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Knight-Swift, Landstar and Herc Holdings is pegged at 15%, 12% and 12.6%, respectively.

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