Here are 5 Reasons to Keep Norfolk Southern (NSC Stock) Stock Now
Norfolk Southern Corporation’s NSC efforts to reward its shareholders through dividends and buybacks bode well.
Investors prefer income-generating stocks. It is therefore highly desirable to have a dividend-paying stock. NSC is still facing headwinds from high operating costs and supply-chain disruptions. NSC is currently a Zacks #3 (Hold)
Factors favoring NSC
Norfolk Southern remains committed to rewarding shareholders, despite COVID-19’s woes. Through a combination dividends ($960M) and share purchasebacks ($1,439M), the company gave back $2,399 millions to shareholders in 2020. The company paid $4,418 million to its shareholders in 2021 through share buybacks (3.390 million) and dividends (1,028 million).
NSC announced a 14% rise in quarterly dividend payouts in January 2022. This was the third dividend hike announced by NSC in a year’s time. Norfolk Southern paid out dividends in the first nine months 2022 at $881 million. This is an increase of 15% year-over-year. It also repurchased and retired common stock valued at $2,284 millions.
The company’s strong free cash flow generating ability supports its shareholder-friendly activities. The company’s free cash flow in the first nine month of 2022 was $2,142 millions. Current-year dividends are expected in the 35-40% range for net income. Management intends to use any remaining cash flow or financial leverage to buy shares.
Management decided to increase its revenue growth outlook for the current year due to strong demand. The total revenue is expected to rise by over 13% in 2022 compared to 2021 levels. This compares with the earlier outlook of growth of more than 12%. These growth drivers will be primarily driven by intermodal and merchandise.
There are also near-term opportunities in the coal segment. Revenue growth is driving the expected 62% reported operating ratio in 2022. This represents operating expenses as a proportion of revenues.
Key Risks
Escalating fuel costs pose a threat to Norfolk Southern’s bottom line. The Russian invasion of Ukraine has caused the oil price to move north. NSC saw fuel expenses rise 91% year-over-year in the first nine months 2022. This led to an 18% increase in operating costs.
Capex will be a problem. Management projects capex to be between $1.8 and $1.9 billion by 2022.
Volumes fell 2% in the September quarter due to supply-chain disruptions, slower network velocity, and overall volume declines. The volumes also declined in the first two quarters 2022.
Stocks to Take into Account
Some better-ranked stocks in the broader Zacks Transportation sector are Covenant Logistics CVLG and Teekay Tankers TNK.
Covenant Logistics provides a range of logistics and transportation services including dedicated, asset-based, expedited and irregular route truckload capacities, asset-light warehouse, freight management, and freight brokerage capabilities.
Covenant is benefiting from the improving freight market. CVLG’s cost-control efforts are appreciated as well. CVLG currently holds a Zacks Rank 1 (Strong Buy). Over the past 60 days, the Zacks Consensus Estimate of 2023 earnings has been revised 6.3% higher by the stock. See the full report. the complete list of today’s Zacks #1 Rank stocks here.
Teekay Tankers Tanker rates have been a boon for the economy. Also, a gradual increase in economic activity is a positive sign. However, high fuel costs are affecting the bottom line.
Teekay Tankers is currently ranked #1 on Zacks. TNK’s shares have soared 67.3% over the past six months. The Zacks Consensus Estimate of 2023 earnings has moved 180% to the north over the past 60 days.
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Norfolk Southern Corporation (NSC) : Free Stock Analysis Report
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