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Norfolk Southern (NSC) Strong on Dividends Amid Low Volumes

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We recently issued an updated report on Norfolk Southern Corporation (NSC - Free Report) . Factors like low volumes, high-debt levels and coronavirus-related woes have hurt the company’s financials. However, its shareholder-friendly approach bodes well.

Norfolk Southern is constantly undertaking efforts to streamline operations by curbing costs. The company’s operating ratio (operating expenses as a percentage of revenues) in 2019 increased to 64.7% from 65.4% a year ago. Notably, lower value of the metric bodes well. Further, the company aims to achieve an operating ratio of 60% in 2021. Moreover, its new precision scheduled railroading operating plan, TOP21, aims to enhance efficiency and customer service.

Moreover, the company’s efforts to reward its investors through share buybacks and dividend payments are commendable. In 2019, the company returned $3,048 million to its shareholders through dividend payouts ($949 million) and buybacks ($2,099 million). Notably, Norfolk Southern has hiked its quarterly dividend payout four times since 2018.

However, automotive volumes declined 2% in 2019 due to decelerating vehicle production in the United States. Key components in the merchandise segment like forest and consumer (volumes down 7% in 2019) as well as metals and construction (volumes down 5% in 2019) performed dismally.

Apart from the merchandise segment, key units like coal and intermodal put up a poor show due to below-par rail traffic volumes. In 2019, intermodal volumes at Norfolk Southern declined 4%, while coal volumes shrank 12%. Due to the sluggish performance of its key divisions, overall volumes declined 5% in 2019. Due to the lackluster freight scenario, first-quarter 2020 revenues are expected to be similar to what was achieved in fourth-quarter 2019.

Moreover, the company’s high-debt levels are concerns. Also, the coronavirus outbreak is a setback for the company and might delay shipments. The same is likely to hurt first-quarter 2020 results.

Zacks Rank & Stocks to consider

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

Few better-ranked stocks to consider in the zacks Transportation sector are GATX Corporation (GATX - Free Report) , Ryanair Holdings plc (RYAAY - Free Report) and Spirit Airlines, Inc. (SAVE - Free Report) . GATX sports a Zacks Rank # 1 (Strong Buy), whereas Ryanair and Spirit Airlines carry a Zacks Rank # 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for GATX, Ryanair and Spirit Airlines is pegged at 15%, 16.6% and 12.5%, respectively.

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