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How Analysts View Norfolk Southern after Its 2Q17 Results

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Analysts’ recommendations for NSC

In this final part of Norfolk Southern’s post-earning series, we’ll take a look at analysts’ opinions on the stock. NSC is covered by 29 analysts. In a survey conducted by Reuters, analysts gave a consensus rating of ~2.6 on the company, indicating a “hold.”

Four analysts (13.8%) have a “strong buy” opinion on NSC stock, and five analysts (17.2%) have a “buy” opinion on the stock. Plus, 17 analysts (58.6%) have a “hold” recommendation on NSC stock, and two analysts (6.9%) recommend a “sell” for the stock.

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Analysts’ recommendations for NSC’s peers

NSC’s primary rival, CSX (CSX) has “buy” recommendations from 20 of 29 analysts covering the stock. Union Pacific (UNP) has “buy” recommendations from 16 of 31 analysts covering the stock.

Fifteen of 21 analysts covering Canadian Pacific (CP) advise a “buy” to investors. The same advice is given to Canadian National Railway (CNI) by five of 21 analysts. The largest short-line operator in the US, Genesee & Wyoming (GWR), has seven of 12 analysts with “buy” recommendations.

If you prefer holding transportation stocks, you can consider the iShares US Industrials ETF (IYJ), which has ~5.9% of its portfolio dedicated to Class I railroads.

Analysts’ “hold” rating for Norfolk Southern

In our view, the “hold” recommendation on Norfolk Southern is indicative of the current state of the overall railroad sector. The sector’s freight volumes are rising, although slowly. Although merchandise volumes may be subdued, coal and intermodal shipments could shine going forward.

In response to the coal revenue slump in 2016, Norfolk Southern took several measures to improve its efficiency. These measures include the transfer of locomotives, coal asset rationalization, and short-line spin-offs. Analysts believe the company’s management is progressing well on its path of achieving $650.0 million in cost savings by the end of 2020. NSC’s operating metrics have been improving in the last two quarters.

With a 25% rise in share repurchases, NSC’s bottom line could improve in the coming quarters.

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