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Norfolk Southern (NSC) Up 9.2% in Six Months: More Upside Left?

Shares of Norfolk Southern NSC have displayed an uptrend on the bourses, gaining 9.2% in the past six months against the S&P 500 Index’s decline of 5.8%.


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Let’s delve into the reasons for this impressive price performance and examine if there is any scope for a further upside.

With economic activities gaining pace, overall volumes improved 5% year over year in 2021 with the metric improving at all three units, namely coal (up 15%), merchandise (up 7%) and intermodal (up 3%). Improvement in revenues (up 14% in 2021) is driving volumes.

Despite coronavirus-related woes, Norfolk Southern, currently carrying a Zacks Rank #3 (Hold), is committed to rewarding its shareholders. In 2020, NSC returned $2,399 million to its shareholders through a combination of dividends ($960 million) and share buybacks ($1,439 million).  In 2021, NSC rewarded its shareholders with $4,418 million through dividends ($1,028 million) and share buybacks (3,390 million).

In January 2022, Norfolk Southern's board announced a 14% increase in its quarterly dividend payout. This was the third dividend hike announced by NSC in a year’s time. Its strong free cash flow generating ability supports its shareholder-friendly activities.

During 2020, Norfolk Southern generated free cash flow of $2.1 billion, up 14% year over year. In 2021, NSC generated the metric to the tune of $2,785 million, up 30% year over year.

Management expects current-year dividend payout ratio in the 35-40% range. Moreover, with economic activities picking up, freight demand and overall volumes might continue their northward movement. The bright future of NSC is evident from the Zacks Consensus Estimate for 2022 earnings being revised 1.7% upward over the past 60 days.

Stocks to Consider

Investors interested in the Zacks Transportation sector may consider stocks like ArcBest Corporation ARCB and Ryder System R. You can see the complete list of today’s Zacks #1 Rank stocks here.

ArcBest currently sports a Zacks Rank of 1 (Strong Buy). ARCB has a stellar surprise history. Its earnings outperformed the Zacks Consensus Estimate in each of the preceding four quarters, the average being 31.4%.

Shares of ArcBest have rallied 23.7% in the past six months. Improving freight conditions in the United States bode well for ARCB. Solid customer demand and higher market rates are supporting growth at ARCB.

Ryder System is benefiting from improving economic and freight market conditions in the United States. R’s measures to reward its shareholders through dividends and share buybacks are encouraging. In February 2022, R entered into a $300-MILLION accelerated share repurchase program, which will run through October 2022.

Ryder sports a Zacks Rank #1, currently. Its shares have gained 2.9% in a year’s time. The Zacks Consensus Estimate for current-year earnings has risen 30.9% over the past 60 days.


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Norfolk Southern Corporation (NSC): Free Stock Analysis Report
 
Ryder System, Inc. (R): Free Stock Analysis Report
 
ArcBest Corporation (ARCB): Free Stock Analysis Report
 
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