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Norfolk Southern Up 29% in a Year: What's Driving the Stock?

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Shares of Norfolk Southern Corporation (NSC - Free Report) have fared well in a year’s time. The stock has gained 28.6% compared with the industry’s rise of 16.7%.

Reasons for Impressive Price Performance

In October, the Norfolk, VA-based rail transportation company reported impressive third-quarter 2018 results. Earnings per share came in at $2.52, which beat the Zacks Consensus Estimate of $2.44. Moreover, the bottom line surged 44% year over year. Railway operating revenues of $2,947 million outpaced the consensus mark of $2,904.3 million.  Also, the top line improved 10.4% year over year.

Norfolk Southern benefits from volume growth significantly. Volumes have increased 5% in the first nine months of the year on the back of impressive performances by the key divisions. Volume growth is expected to aid results in the final quarter of the year. Recently, at the Stephens Fall Industrial Conference, the company's Executive Vice President and Chief Financial Officer – Cindy C. Earhart – stated that overall volumes for the fourth quarter of 2018 have increased 2.6% year over year as of Nov 3.

Furthermore, Norfolk Southern is making constant efforts to streamline operations to increase productivity. The company aims to lower costs to drive the bottom line. Additionally, improvement in operating ratio (operating expenses as a percentage of revenues) is another positive. This key metric has improved for 11 consecutive quarters and is expected to do so in the final quarter of 2018 as well.

Moreover, we are encouraged by the company’s consistent focus on rewarding shareholders in the form of share repurchases and dividends. Norfolk Southern rewarded shareholders to the tune of $2.9 billion in the first nine months of 2018 through dividends ($627 million) and buybacks ($2,300 million). In Jul 2018, the company raised quarterly dividend by 11% to 80 cents a share. This is the second dividend hike by the company this year. The hikes underline bright prospects and strong financial condition.

Bullish Readings & Zacks Rank

Norfolk Southern has an impressive surprise history. It beat estimates in each of the trailing four quarters, the average being 7.2%.

The positivity revolving around the stock can be gauged from the Zacks Consensus Estimate being revised 3.1% upward in the past 60 days for current-quarter earnings.

The company’s impressive Momentum Score of B further highlights short-term attractiveness.

In light of these positives, we believe that Norfolk Southern should be added by investors to their portfolios. The Zacks Rank #2 (Buy) carried by the stock seems to suggest the same.

Other Stocks to Consider

Investors interested in the broader Transportation sector may consider Canadian Pacific Railway Limited (CP - Free Report) , Frontline Ltd. (FRO - Free Report) and Spirit Airlines, Inc. (SAVE - Free Report) , each sporting a  Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Canadian Pacific, Frontline and Spirit Airlines have gained 11.7%, 32.1% and 39.7% in the last six months, respectively.

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