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Here's Why You Should Retain Norfolk Southern (NSC) Stock Now
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Norfolk Southern Corporation’s (NSC - Free Report) efforts to reward its shareholders through dividends and buybacks bode well.
Investors always prefer an income-generating stock. Hence, a dividend-paying one is obviously much coveted. However, headwinds like high operating expenses and supply-chain disruptions continue to hurt NSC. Currently, NSC carries a Zacks Rank #3 (Hold).
Factors Favoring NSC
Despite COVID-19-related woes, Norfolk Southern is committed to rewarding its shareholders. In 2020, the company returned $2,399 million to shareholders through a combination of dividends ($960 million) and share buybacks ($1,439 million). In 2021, the company rewarded its shareholders to the tune of $4,418 million, through dividends ($1,028 million) and share buybacks (3,390 million).
In January 2022, the company announced a 14% increase in its quarterly dividend payout. This was the third dividend hike announced by NSC in a year’s time. During the first nine months of 2022, Norfolk Southern paid dividends worth $881 million, up 15% year over year, and repurchased and retired common stock worth $2,284 million.
The company’s strong free cash flow generating ability supports its shareholder-friendly activities. In the first nine months of 2022, free cash flow was $2,142 million. The company expects current-year dividends in the 35-40% range of net income. Management expects to utilize the remaining cash flow and financial leverage to repurchase shares.
The strong demand scenario prompted management to increase its current-year revenue growth outlook. Total revenues are now expected to increase in excess of 13% in 2022 from 2021 levels (earlier outlook: growth in excess of 12%). The intermodal and merchandise segments are expected to be the main growth drivers.
Near-term opportunities are present in the coal segment too. Driven by revenue growth, reported operating ratio (operating expenses as a percentage of revenues) is expected to be roughly 62% in 2022.
Key Risks
Escalating fuel costs pose a threat to Norfolk Southern’s bottom line. Oil price is moving north, primarily because of supply concerns stemming from Russia's invasion of Ukraine. At NSC, expenses on fuel surged 91% year over year in the first nine months of 2022, leading to a 18% rise in operating costs.
High capex is also likely to play spoilsport. Management expects capex for 2022 in the $1.8-$1.9 billion band.
Due to supply-chain disruptions and slower network velocity overall volumes declined 2% year over year in the September quarter. Volumes declined in each of the first two quarters of 2022 as well.
Covenant Logistics offers a portfolio of transportation and logistics services, including asset-based expedited, dedicated and irregular route truckload capacity, besides asset-light warehousing, transportation management and freight brokerage capability.
The gradually improving freight market scenario is a tailwind to Covenant. CVLG’s cost-control efforts are appreciated as well. CVLG currently sports a Zacks Rank #1 (Strong Buy). The stock has witnessed the Zacks Consensus Estimate for 2023 earnings being revised 6.3% upward over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Teekay Tankers is being well-served by the increase in tanker rates. A gradual ramp-up in economic activities also bodes well. High fuel costs are, however, weighing on the bottom line.
Teekay Tankers currently sports a Zacks Rank #1. TNK’s shares have soared 67.3% over the past six months. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved 180% north.
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Here's Why You Should Retain Norfolk Southern (NSC) Stock Now
Norfolk Southern Corporation’s (NSC - Free Report) efforts to reward its shareholders through dividends and buybacks bode well.
Investors always prefer an income-generating stock. Hence, a dividend-paying one is obviously much coveted. However, headwinds like high operating expenses and supply-chain disruptions continue to hurt NSC. Currently, NSC carries a Zacks Rank #3 (Hold).
Factors Favoring NSC
Despite COVID-19-related woes, Norfolk Southern is committed to rewarding its shareholders. In 2020, the company returned $2,399 million to shareholders through a combination of dividends ($960 million) and share buybacks ($1,439 million). In 2021, the company rewarded its shareholders to the tune of $4,418 million, through dividends ($1,028 million) and share buybacks (3,390 million).
In January 2022, the company announced a 14% increase in its quarterly dividend payout. This was the third dividend hike announced by NSC in a year’s time. During the first nine months of 2022, Norfolk Southern paid dividends worth $881 million, up 15% year over year, and repurchased and retired common stock worth $2,284 million.
The company’s strong free cash flow generating ability supports its shareholder-friendly activities. In the first nine months of 2022, free cash flow was $2,142 million. The company expects current-year dividends in the 35-40% range of net income. Management expects to utilize the remaining cash flow and financial leverage to repurchase shares.
The strong demand scenario prompted management to increase its current-year revenue growth outlook. Total revenues are now expected to increase in excess of 13% in 2022 from 2021 levels (earlier outlook: growth in excess of 12%). The intermodal and merchandise segments are expected to be the main growth drivers.
Near-term opportunities are present in the coal segment too. Driven by revenue growth, reported operating ratio (operating expenses as a percentage of revenues) is expected to be roughly 62% in 2022.
Key Risks
Escalating fuel costs pose a threat to Norfolk Southern’s bottom line. Oil price is moving north, primarily because of supply concerns stemming from Russia's invasion of Ukraine. At NSC, expenses on fuel surged 91% year over year in the first nine months of 2022, leading to a 18% rise in operating costs.
High capex is also likely to play spoilsport. Management expects capex for 2022 in the $1.8-$1.9 billion band.
Due to supply-chain disruptions and slower network velocity overall volumes declined 2% year over year in the September quarter. Volumes declined in each of the first two quarters of 2022 as well.
Stocks to Consider
Some better-ranked stocks in the broader Zacks Transportation sector are Covenant Logistics (CVLG - Free Report) and Teekay Tankers (TNK - Free Report) .
Covenant Logistics offers a portfolio of transportation and logistics services, including asset-based expedited, dedicated and irregular route truckload capacity, besides asset-light warehousing, transportation management and freight brokerage capability.
The gradually improving freight market scenario is a tailwind to Covenant. CVLG’s cost-control efforts are appreciated as well. CVLG currently sports a Zacks Rank #1 (Strong Buy). The stock has witnessed the Zacks Consensus Estimate for 2023 earnings being revised 6.3% upward over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Teekay Tankers is being well-served by the increase in tanker rates. A gradual ramp-up in economic activities also bodes well. High fuel costs are, however, weighing on the bottom line.
Teekay Tankers currently sports a Zacks Rank #1. TNK’s shares have soared 67.3% over the past six months. Over the past 60 days, the Zacks Consensus Estimate for 2023 earnings has moved 180% north.