Norfolk Southern: Hop On The Train!
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Norfolk Southern (NYSE: NSC) looks like a really interesting bet for long term investors looking to take positions in solid companies with strong prospects. To begin with, the industry has some attractive characteristics from a competitive standpoint -- it´s quite unlikely that any competitor would build another railroad next to one of Norfolk´s since that sounds like a really bad idea in terms of pricing power and required capital.
Also, railroads are more efficient than trucks when it comes to fuel consumption, and that is an attractive advantage now that oil prices are holding quite high despite all the fears about the march of economic activity around the world. In case the political conflict with Iran and other countries keeps getting complicated, Norfolk could benefit from higher fuel prices.
The company gets a big part of its business from coal transport, so that could be a double hedge against high oil prices as coal exports tend to increase with high energy prices and also the cost advantage of railroads compared to trucks gets more noticeable if fuel prices rise.
Norfolk´s management seems pretty good at executing cost control initiatives and sustaining profit margins over the long term, the company managed to turn a profit in years like 2009, which were very hard for the industry due to the global recession. In case the economy turns for the worse in the following months the stock price could suffer, but this company isn´t very likely to go broke or get into too much trouble. Financially it looks very solid, with strong cash flows and a track record of dividend increases through good and bad times.
When compared to other big railroads like Union Pacific (NYSE: UNP), Canadian National Railway (NYSE: CNI) or CSX (NYSE: CSX), Norfolk Southern looks cheap in terms of its PEG ratio, which is a measure of stock valuation adjusted for expected earnings growth. It also has the highest dividend yield at 2.33%.
Here are some statistics for your viewing pleasure.
|
Company |
Market Cap |
P/E |
Fwd P/E |
PEG |
Dividend yld |
|
Union Pacific Corporation |
52.17B |
17.14 |
13.86 |
1.16 |
2.22% |
|
Canadian National Railway Company |
35.03B |
15.57 |
14.67 |
1.14 |
1.62% |
|
Norfolk Southern Corp. |
24.80B |
14.41 |
12.34 |
0.99 |
2.33% |
|
CSX Corp. |
23.14B |
13.60 |
11.48 |
1.43 |
2.18% |
I own no position in the assets mentioned in this post.
