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Here's Why Norfolk Southern (NSC) Can Grace Your Portfolio
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Norfolk Southern’s (NSC - Free Report) efforts to reward its shareholders through dividends and buybacks are commendable. The company's liquidity position is also good. However, NSC’s top line has been suffering due to the below-par performances of all three key segments — Merchandise, Intermodal and Coal.
Factors Favoring NSC
Norfolk Southern's efforts to reward shareholders are praiseworthy. The company returned $1.847 billion in 2023 through dividends and buybacks. The board's announcement of a 9% increase in quarterly dividends in January 2023 was the fourth such hike within a year. This shareholder-friendly approach is bolstered by the company's robust free cash flow generation, which stood at $830 million in 2023.
The improved liquidity for NSC is evident as its current ratio (a measure of liquidity) rose from 1.08 in the third quarter of 2023 to 1.24 in the fourth quarter of the same year, indicating the company's strengthened ability to cover short-term obligations.
NSC’s dedication to enhancing service, safety and productivity despite challenges is commendable. The company's focus on safety is evidenced by the significant reduction of 42% in its mainline accident rate reported in the fourth quarter of 2023.
Key Risks
NSC is grappling with weak freight conditions, as evidenced by declining revenues across Merchandise, Intermodal and Coal. Overall, revenues fell by 5% year over year in 2023, with revenue per unit also declining by 3% during the same period.
In 2023, compensation and benefits expenses rose by 8% due to factors like wage inflation. This, combined with low revenues, contributes to a high operating ratio(operating expenses as a percentage of revenues). Anticipated labor negotiations may further raise costs. We anticipate a 3.7% increase in expenses for 2024 compared to 2023.
NSC's 2023 technology outage is concerning, potentially affecting the performance despite system restoration. Such setbacks are unwelcome amid significant technology investments by transportation firms.
AL has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 20.15%. AL currently carries Zacks Rank #2 (Buy). Continuous fleet growth and increased sales activity are boosting Air Lease's revenues.
The Zacks Consensus Estimate for 2024 earnings has been revised 26.04% upward over the past 90 days. The company has an expected earnings growth rate of 30% for 2024. Shares of AL have rallied 30.2% in the past year.
SKYW sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 26% over the past 90 days. Shares of SkyWest have surged 208.3% in the past year.
SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.02%, on average.
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Here's Why Norfolk Southern (NSC) Can Grace Your Portfolio
Norfolk Southern’s (NSC - Free Report) efforts to reward its shareholders through dividends and buybacks are commendable. The company's liquidity position is also good. However, NSC’s top line has been suffering due to the below-par performances of all three key segments — Merchandise, Intermodal and Coal.
Factors Favoring NSC
Norfolk Southern's efforts to reward shareholders are praiseworthy. The company returned $1.847 billion in 2023 through dividends and buybacks. The board's announcement of a 9% increase in quarterly dividends in January 2023 was the fourth such hike within a year. This shareholder-friendly approach is bolstered by the company's robust free cash flow generation, which stood at $830 million in 2023.
The improved liquidity for NSC is evident as its current ratio (a measure of liquidity) rose from 1.08 in the third quarter of 2023 to 1.24 in the fourth quarter of the same year, indicating the company's strengthened ability to cover short-term obligations.
NSC’s dedication to enhancing service, safety and productivity despite challenges is commendable. The company's focus on safety is evidenced by the significant reduction of 42% in its mainline accident rate reported in the fourth quarter of 2023.
Key Risks
NSC is grappling with weak freight conditions, as evidenced by declining revenues across Merchandise, Intermodal and Coal. Overall, revenues fell by 5% year over year in 2023, with revenue per unit also declining by 3% during the same period.
In 2023, compensation and benefits expenses rose by 8% due to factors like wage inflation. This, combined with low revenues, contributes to a high operating ratio(operating expenses as a percentage of revenues). Anticipated labor negotiations may further raise costs. We anticipate a 3.7% increase in expenses for 2024 compared to 2023.
NSC's 2023 technology outage is concerning, potentially affecting the performance despite system restoration. Such setbacks are unwelcome amid significant technology investments by transportation firms.
Zacks Rank
NSC currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Investors interested in the broader Transportation sector may consider stocks like Air Lease (AL - Free Report) and SkyWest (SKYW - Free Report) .
AL has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 20.15%. AL currently carries Zacks Rank #2 (Buy). Continuous fleet growth and increased sales activity are boosting Air Lease's revenues.
The Zacks Consensus Estimate for 2024 earnings has been revised 26.04% upward over the past 90 days. The company has an expected earnings growth rate of 30% for 2024. Shares of AL have rallied 30.2% in the past year.
SKYW sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 26% over the past 90 days. Shares of SkyWest have surged 208.3% in the past year.
SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.02%, on average.