On Wednesday, Stifel analyst Benjamin Nolan adjusted the stock price target for Norfolk Southern Corporation (NYSE:NSC), a leading transportation company, to $239 from the previous $241, while maintaining a "Hold" rating on the stock. The revision follows a period of volatility for Norfolk Southern shares, which experienced a significant pullback after a rapid ascent during an activist shareholder proxy battle.
Norfolk Southern, which was unable to implement leadership changes proposed by Ancora Group despite the latter winning three board seats, has struggled to convince investors of its strategy's efficacy. The company aims to achieve a substantial reduction in its operating ratio (OR) to 64-65% by the latter half of this year, a target that has been met with skepticism.
The analyst expects Norfolk Southern's second-quarter volume growth to be around 5.4% and anticipates an improvement in operational performance, forecasting a second-quarter OR of 65.8%. This represents a modest year-over-year decrease but a significant sequential improvement.
Revenue for the second quarter is projected to remain flat at $2.97 billion, with a forecast for fiscal year 2024 to mirror this figure. However, growth is expected to pick up in the following years, with an estimated topline expansion of approximately 5% in 2025 and 2026.
Earnings per share (EPS) for the second quarter are estimated at $2.84, slightly below the Factset consensus of $2.87, with a full-year 2024 estimate of $11.64. While the firm acknowledges the potential for Norfolk Southern's new strategies to yield positive outcomes as cost pressures ease and network fluidity improves, it anticipates that the stock's valuation may continue to be affected until the company can demonstrate tangible improvements.
The price target of $239 is based on the stock trading at 18 times Stifel's 2025 EPS estimate of $13.29. Despite the challenges, Stifel's outlook remains cautiously optimistic about Norfolk Southern's ability to execute its strategies effectively in the future.
In other recent news, Norfolk Southern Corporation is taking significant steps toward enhancing safety and compliance following a train derailment in East Palestine, Ohio, in February 2023. The corporation has committed to implementing safety recommendations from the National Transportation Safety Board (NTSB) and has already made notable strides in addressing the Federal Railroad Administration's (FRA) 2023 Safety Culture Assessment recommendations.
Norfolk Southern's recent midyear safety report highlighted a 30% reduction in mainline accidents and a drop in the Federal Railroad Administration Personal Injury Index from 1.51 in 2020 to 1.09 in 2023.
Morgan Stanley (NYSE:MS) has resumed coverage on Norfolk Southern, assigning an Underweight rating to the company's shares. This is in contrast to RBC Capital Markets and Barclays (LON:BARC), which have upgraded Norfolk Southern's stock citing potential for operational improvements and strategic changes.
In terms of financials, Norfolk Southern has agreed to a settlement involving a $15 million civil penalty and reimbursement of $57.1 million in past government cleanup costs. These recent developments underscore Norfolk Southern's commitment to continuous safety improvement, operational excellence, and shareholder value.
InvestingPro Insights
As Norfolk Southern Corporation (NYSE:NSC) navigates through its current challenges and aims for operational efficiency, insights from InvestingPro provide a clearer picture of the company's financial standing. With a market capitalization of $53.04 billion and a high price-to-earnings (P/E) ratio of 37.79, the company's valuation is a focal point for investors. The adjusted P/E ratio for the last twelve months as of Q1 2024 stands at 23.23, indicating a significant premium compared to the industry average.
InvestingPro Tips highlight that Norfolk Southern has a commendable history of raising its dividend, doing so for 43 consecutive years, which may appeal to income-focused investors. However, analysts have expressed caution, with 14 analysts revising their earnings expectations downwards for the upcoming period. The company's stock is currently in overbought territory according to the Relative Strength Index (RSI), suggesting that the recent price surge may be due for a correction.
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