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Norfolk Southern Up 32% in a Year: What's Behind the Rally?
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Shares of Norfolk Southern Corporation (NSC - Free Report) have gained 32.1% in a year’s time, outperforming the Zacks Rail industry’s rally of 23.1%.
Reasons Behind the Impressive Price Performance
This railroad operator has an impressive earnings surprise history, having outshined the Zacks Consensus Estimate in each of the last four quarters. A positive earnings surprise or earnings beat is typically the case when actual or reported earnings come in above the consensus estimate.
We note that a history of positive earnings surprise generally works as a catalyst in sending a stock higher. It indicates the company’s ability to surpass the estimates. So, investors take it in their consideration while betting on the stock, with an expectation that the company will do the same trick to outpace the estimates in the upcoming release.
The most recent earnings beat came last month when this Norfolk, VA- based company reported first-quarter 2018 results. The earnings outperformance apart, it also surpassed the Zacks Consensus Estimate for revenues. Both the metrics also improved on a year-over- year basis. Furthermore, its intermodal unit performed very well in the quarter. Intermodal revenues and volumes increased 19% and 7%, respectively.
Also,Norfolk Southern’s cost-control efforts are impressive. To this end, the company’s operating ratio (operating expenses as a percentage of revenues) improved 70 basis points in the first quarter. The company aims to achieve an operating ratio below 65% by 2020 or even earlier. Annual productivity savings in excess of $650 million are expected by 2020.
In fact, the lesser the value of operating ratio the better as it implies that more cash is available with the company to reward shareholders through dividends/buybacks.
Earlier in 2018, this Zacks Rank #3 (Hold) company announced an 18% increase in its quarterly cash dividend to 72 cents per share (annualized $2.88 per share) driven by the new tax law. Norfolk Southern shelled out $205 million as dividends in the first quarter of 2018. Of late, the company also raised its current-year buyback target to $1.5 billion.
We believe the new tax law is a blessing for Transportation companies like Norfolk Southern. This is because the huge savings induced by the new law might result in an uptick in these shareholder-friendly activities. Other transportation stocks like Southwest Airlines Co. (LUV - Free Report) , Canadian Pacific Railway Limited (CP - Free Report) and Expeditors International of Washington, Inc. (EXPD - Free Report) also hiked dividend payouts recently owing to the new tax law.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Norfolk Southern Up 32% in a Year: What's Behind the Rally?
Shares of Norfolk Southern Corporation (NSC - Free Report) have gained 32.1% in a year’s time, outperforming the Zacks Rail industry’s rally of 23.1%.
Reasons Behind the Impressive Price Performance
This railroad operator has an impressive earnings surprise history, having outshined the Zacks Consensus Estimate in each of the last four quarters. A positive earnings surprise or earnings beat is typically the case when actual or reported earnings come in above the consensus estimate.
We note that a history of positive earnings surprise generally works as a catalyst in sending a stock higher. It indicates the company’s ability to surpass the estimates. So, investors take it in their consideration while betting on the stock, with an expectation that the company will do the same trick to outpace the estimates in the upcoming release.
The most recent earnings beat came last month when this Norfolk, VA- based company reported first-quarter 2018 results. The earnings outperformance apart, it also surpassed the Zacks Consensus Estimate for revenues. Both the metrics also improved on a year-over- year basis. Furthermore, its intermodal unit performed very well in the quarter. Intermodal revenues and volumes increased 19% and 7%, respectively.
Also,Norfolk Southern’s cost-control efforts are impressive. To this end, the company’s operating ratio (operating expenses as a percentage of revenues) improved 70 basis points in the first quarter. The company aims to achieve an operating ratio below 65% by 2020 or even earlier. Annual productivity savings in excess of $650 million are expected by 2020.
In fact, the lesser the value of operating ratio the better as it implies that more cash is available with the company to reward shareholders through dividends/buybacks.
Earlier in 2018, this Zacks Rank #3 (Hold) company announced an 18% increase in its quarterly cash dividend to 72 cents per share (annualized $2.88 per share) driven by the new tax law. Norfolk Southern shelled out $205 million as dividends in the first quarter of 2018. Of late, the company also raised its current-year buyback target to $1.5 billion.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
We believe the new tax law is a blessing for Transportation companies like Norfolk Southern. This is because the huge savings induced by the new law might result in an uptick in these shareholder-friendly activities. Other transportation stocks like Southwest Airlines Co. (LUV - Free Report) , Canadian Pacific Railway Limited (CP - Free Report) and Expeditors International of Washington, Inc. (EXPD - Free Report) also hiked dividend payouts recently owing to the new tax law.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>