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Here's Why You Should Retain Norfolk Southern (NSC) Stock Now

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Norfolk Southern Corporation (NSC - Free Report) stock has moved up 12.5% in the past year compared with 10.3% growth of the industry it belongs to.

Zacks Investment ResearchImage Source: Zacks Investment Research

For 2021, earnings and revenues are expected to grow at a rate of 29% and 12.4% on a year-over-year basis, respectively.  

Key Growth Drivers

Norfolk Southern’s liquidity position is encouraging. The company exited the June-end quarter with cash and cash equivalents of $1,670 million compared with the current debt of $1,048 million. Additionally, its current ratio (a measure of liquidity) at the end of the June quarter stood at 1.08, higher than the March quarter's reading of 1.02.

Despite coronavirus-related woes, Norfolk Southern is committed to rewarding its shareholders. During 2020, Norfolk Southern generated free cash flow of $2.1 billion, up 14% year over year. In first-half 2021, the company paid $496 million to its shareholders through dividends and repurchased shares worth $1,525 million. In its latest shareholder-friendly move, the company's board approved a 10% quarterly dividend hike to $1.09 per share in July 2021. This was the second time this year that the company had increased its dividend payout. Free cash flow generation by the company supports its shareholder-friendly approach. In the first six months of 2021, the company generated free cash flow to the tune of $1,470 million, up 44% year over year.

Primary Concern

Increase in fuel costs due to the uptick in oil prices is limiting bottom-line growth. In second-quarter 2021, expenses on fuel increased more than 100%, inducing an 11% rise in operating expenses. In the April-June period, oil prices increased 24.2%.  In the first six months of 2021, expenses on fuel increased 34% year over year to $365 million at Norfolk Southern.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Zacks Transportation sector are Schneider National, Inc. (SNDR - Free Report) , C.H. Robinson Worldwide, Inc. (CHRW - Free Report) and TFI International Inc. (TFII - Free Report) . All the stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Schneider National, C.H. Robinson and TFI International is pegged at 17.9%, 9% and 31.6%, respectively.