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Here's Why You Should Retain Norfolk Southern Stock Now

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Norfolk Southern’s (NSC - Free Report) bottom line is bolstered by reduced cost and improved operational efficiency. A shareholder-friendly approach bodes well for the company. However, NSC continues to grapple with the adverse impacts of the Ohio incident.

Factors Favoring NSC

Norfolk Southern's strategic decision to move more than 320 locomotives into storage or offline has led to significant cost savings and operational improvements. By reducing fuel consumption, maintenance expenses and overtime by about 20% in the second quarter of 2024, the company has enhanced reliability and efficiency.

The restructured operating plan removed 7,000 cars from active service. This has helped eliminate $150 million in annual service recovery costs, boosting NSC's financial health and benefiting the company's bottom line and investors.

By investing in safe and sustainable growth, the company is aligning with its vision of customer-centric operations by developing a new coal facility in 2025 to support global metal production and reallocating capital to regions with significant economic growth. These actions reflect a strategic approach to long-term, sustainable development and efficient resource use.

Moreover, by collaborating with labor unions and maintaining a strong focus on both operational and employee safety, Norfolk Southern has achieved a 38% reduction in mainline accidents in 2023, a nearly 14% improvement in the FRA Personal Injury Index and a 28% decrease in employee accidents since 2020. This comprehensive strategy has fostered a robust safety culture.

The company’s commitment to reward its shareholders through dividends and buybacks is encouraging. In the second quarter of 2024, NSC paid out a quarterly dividend of $1.35 per share to its shareholders, marking it to be its 167th consecutive quarterly dividend since 1982.

Shares of Norfolk Southernhave rallied 24.1% in the past year compared with its industry’s growth of 11.9% in the same period.

Zacks Investment Research
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Norfolk Southern:Risks to Watch

Norfolk Southern continues to grapple with the financial impacts of the Feb. 3, 2023, Ohio incident. In the first half of 2024, the company reported $527 million in expenses related to the incident. While insurance recoveries have provided some relief, the company continues to face significant costs associated with the incident.

Norfolk Southern exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 0.63. A current ratio of less than 1 indicates that the company is likely to struggle to meet its short-term obligations.

Zacks Rank

NSC currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. Robinson Worldwide (CHRW - Free Report) and Westinghouse Air Brake Technologies (WAB - Free Report) .

C.H. Robinson Worldwide currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. CHRW has an expected earnings growth rate of 25.2% for the current year.

The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have risen 17.2% in the past year.

WAB sports a Zacks Rank #1 at present and has an expected earnings growth rate of 26% for the current year.

The company has a discouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters. The average beat is 11.8%. Shares of WAB have climbed 49.4% in the past year.

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