BofA Upgrades Norfolk Southern On Prospects Of Sustainable Margins

While Norfolk Southern Corp. (NYSE: NSC) is continuing with its strategic overhaul, which it initiated in 2018, the improvements are “now palpable and are accelerating,” according to BofA Securities.

The Norfolk Southern Analyst: Ken Hoexter upgraded the rating for Norfolk Southern from Neutral to Buy, while raising the price target from $287.02 to $325.

The Norfolk Southern Thesis: The company’s premier intermodal franchise is likely to allow it to gain share in the tight truck market, Hoexter said in the upgrade note.

“Chief Marketing Officer Alan Shaw has driven the Yield Up strategy mantra into sustained market-based pricing while operating efficiency continues to improve rail performance,” he mentioned.

“Norfolk Southern posted 3Q21 EPS of $3.06, up 22% year-year, above our $2.77 target and Street’s $2.91. The company’s Yield Up strategy (market pricing) led to average revenue per car gains of +14%, above our 10% target, on flat carloads. Those gains enabled it to post a 60.2% operating ratio, 200 bps better than our target and a 230 bps improvement year-over-year,” the analyst wrote.

“We believe NS is set to move operation ratio into the ’50s (we target 59% in 2022 and 58% in 2023), which should drive sustainable double-digit EPS growth despite current soft volumes,” he added.

NSC Price Action: Shares of Norfolk Southern had risen by 1.21% to $290.52 at the time of publication Thursday.

Photo: Courtesy Norfolk Southern