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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) is being aided by solid railway operating revenues and shareholder-friendly measures. However, low cash balance is worrisome.

Factors Favoring NSC

In first-quarter 2023, railway operating revenues increased 7.5% year over year to $3,132 million. Key segments like Merchandise and Coal, registered improvements in revenues. Total revenue per unit rose 8% year over year, driven by higher fuel surcharges and pricing. Income from railway operations climbed 1% year over year to $1,098 million. Such impressive top-line performance, despite the challenging backdrop, is indeed commendable.

Despite COVID-19-related woes, Norfolk Southern is committed to rewarding its shareholders.  In 2020, the company returned $2,399 million to shareholders through a combination of dividends ($960 million) and share buybacks ($1,439 million).  In 2021, shareholders were rewarded to the tune of $4,418 million, through dividends ($1,028 million) and share buybacks (3,390 million).

In January 2023, management announced a 9% increase in its quarterly dividend payout. This was the fourth dividend hike announced by the company in a year’s time. During 2022, Norfolk Southern paid dividends worth $1,167 million, up 13.5% year over year.

NSC repurchased and retired common stock worth $3,110 million in 2022. Norfolk Southern’s strong free cash flow generating ability supports its pro-investor activities.

Key Risks

NSC exited 2022 with cash and cash equivalents of $456 million compared with $839 million at the end of 2021. It had a long-term debt of $14,479 million at the end of 2022 compared with $13,287 million at 2021 end. Norfolk Southern exited first-quarter 2023 with cash and cash equivalents of $552 million and long-term debt of $14,585 million.

Zacks Rank & Key Picks

Currently, NSC carries a Zacks Rank #3 (Hold). Some better-ranked stocks for investors interested in the Zacks Transportation sector are Copa Holdings, S.A. (CPA - Free Report) and Allegiant Travel Company (ALGT - Free Report) .

Copa Holdings, which presently sports a Zacks Rank #1 (Strong Buy), is aided by improved air-travel demand. We are encouraged by Copa Holdings' initiatives to modernize its fleet. CPA's focus on its cargo segment is also impressive. You can see the complete list of today’s Zacks #1 Rank stocks here.

For second-quarter and full-year 2023, CPA’s earnings are expected to register 669% and 65% growth, respectively, on a year-over-year basis.

Allegiant, currently carrying a Zacks Rank #2 (Buy), also benefits from buoyant air-travel demand. With air-travel demand rising in the United States, operating revenues improved 8.5% year over year in 2022.

Management expects revenues to remain strong in 2023 as well. In first-quarter 2023, operating revenues increased 29.9% on a year-over-year basis.

For second-quarter and full-year 2023, ALGT’s earnings are estimated to rise 328% and 182%, respectively, on a year-over-year basis.

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Norfolk Southern Corporation (NSC) - free report >>

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