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Norfolk Southern on the Street: Why Analysts Say ‘Hold’ before the 1Q17 Results


Apr. 20 2017, Updated 9:07 a.m. ET

Analysts’ recommendations

Norfolk Southern (NSC) has a mean analyst rating of 2.57, indicating a “hold.” Of the 28 analysts covering NSC, four have issued a “strong buy,” while six advise a “buy,” and 16 (57%) suggest a “hold” on the stock. Only two analysts have issued a “sell” recommendation on NSC stock.

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Price targets for NSC

Norfolk Southern has a consensus 12-months target price of $121.8. Based on its last closing price of $113.2 on April 17, 2017, this translates into a return potential of 8.1%. When inflated by Hunter Harrison’s plans to completely overall CSX, the stock has a return potential of 12%, with a target price of $52.1.

It appears that, with the passage of time since businessman and reality TV show host Donald Trump became the US President, investors’ fears about Kansas City Southern’s (KSU) Mexican operations have diminished. The stock now has a target price of $95.4, implying a potential return of 7.2% over the next 12 months.

By comparison, Union Pacific (UNP) has a target price of $114.9, with a potential return of 9.1%. Buoyed by solid acquisitions in late 2016, Genesee & Wyoming (GWR) has a potential return of 21.1%, with a target price of $79.1.

Notably, all major railroads in the United States make up 5% of the portfolio holdings of the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR).

Why so many “hold” ratings for Norfolk Southern?

We shouldn’t be too surprised by the majority of “hold” recommendations for Norfolk Southern. In fact, the “hold” opinion is actually indicative of analysts’ outlook of the railroad industry on the whole. Coal has been a major factor, but investors should note that export coal has been showing signs of revival since 4Q16. Such a revival could increase Norfolk Southern’s coal revenues in coming quarters, and it should also improve the per-unit revenue in the coal business.

NSC has also been steadily marching toward its “Target 2020.” Its 4Q16 results were in line with its targets for cost cutting and improving efficiency, and markets are expecting the company to deliver on the earnings front in its 1Q17 results.

That said, the entire dynamics of Eastern US railroads have changed since Hunter Harrison took over as a chief of NSC’s main competitor, CSX and this new development has put enormous pressure on the former to deliver in quarters to come.


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