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

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Norfolk Southern (NSC - Free Report) is hurt by weak freight conditions. Inflation-related woes have dented consumer demand for goods, in turn, affecting freight volumes hauled by rail. Supply-chain disruptions and slower network velocity are further challenges confronting the company.

Costs have been high primarily due to expenses associated with the Eastern Ohio incident. Norfolk Southern's efforts to reward its shareholders through dividends and buybacks are encouraging. The company's liquidity position is also good.

Let’s delve deeper.


We are impressed by Norfolk Southern’s efforts to reward its shareholders through dividends and buybacks. In 2023, the company returned $1.847 billion to shareholders. In January 2023, the company's board announced a 9% increase in its quarterly dividend payout. This was the fourth dividend hike announced by the company in a year’s time. Norfolk Southern's strong free cash flow generating ability supports its shareholder-friendly activities.

NSC's position with respect to liquidity is good. The company exited 2023 with a current ratio (a measure of liquidity) of 1.24, higher than the reading of 0.76 at the end of 2022. The improvement in current ratio is a welcome development as it implies that the company has enough cash to meet its short-term obligations.

Its focus on improving service, safety and productivity despite the challenges is commendable. As a reflection of its focus on safety, NSC has been witnessing a reduction in the mainline accident rate.


Softness pertaining to the freight demand scenario is hurting Norfolk Southern bigtime. The top line has been suffering due to below-par performances of all three key segments, namely, Merchandise, Intermodal and Coal. Due to the weakness, revenues declined 5% year over year in 2023. Revenue per unit declined 3% in 2023.

Expenses on compensation and benefits are increasing due to headwinds like wage inflation. In 2023, expenses on compensation and benefits increased 8% from 2022 levels.  Apart from low revenues, high costs are also hurting operating ratio (operating expenses as a percentage of revenues). The recent negotiations with various labor groups are also likely to push labor costs higher.

The hardware-related technology outage that impacted NSC's rail operations in 2023 is a concern. Even though all systems are now restored, the glitch may hurt performance. With transportation companies spending significantly on technology upkeep/upgrade, such setbacks are unwarranted.

Due to the headwinds shares of Norfolk Southern have fallen 5.2% year to date compared with its industry’s 4.7% decline.

Zacks Investment Research
Image Source: Zacks Investment Research

The Zacks Consensus Estimate for NSC’s current-year earnings declined 2.1% over the past 60 days due to the challenges.

Zacks Rank

NSC currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks from the Zacks Transportation sector are Wabtec Corporation (WAB - Free Report) and Kirby Corporation (KEX - Free Report) .

WAB currently sports a Zacks Rank #1 (Strong Buy) and has an expected earnings growth rate of 22.6% for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.

WAB has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 11.5%. Shares of Wabtec have surged 63.9% in the past year.

KEX currently flaunts a Zacks Rank #1 and has an expected earnings growth rate of 42.2% for the current year.

The company 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 10.3%. Shares of KEX have risen 59.1% in the past year.

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