Norfolk Southern Stock Downgraded: BofA Flags Increasing Concerns Over Data Integrity and Operational Setbacks

BofA Securities analyst Ken Hoexter downgraded the shares of Norfolk Southern Corporation NSC from Buy to Neutral and lowered the price target from $266 to $215.

NSC’s multiple external impacts to its operations are of increasing concern over its data integrity, along with suspension in customer moves, which can lead to potential share loss to peers, said the analyst.

The analyst lowered FY 23/’24/’25 EPS estimate 6%/7%/6%, to $11.90/$13.00 /$14.50, from $12.60/$14.00/$15.45.

The analyst noted that the company experienced a data center outage Friday (Sept 29) evening, which suspended its dispatching, train starts, and terminal operating systems until Sept 30 morning, which is expected to impact operations over the next two weeks.

This follows a similar outage on Aug 28 when a failure in its IT infrastructure led to a 12-hour outage, stopping it from launching new trains or in-gating arriving trains, added the analyst.

The analyst believes this is an increasing risk to future earnings as a lack of service consistency could lead to share loss and challenged pricing gains. 

Although service improved in July after Norfolk’s February East Palestine derailment, its performance stalled, with velocity down 4% since early July.

The analyst expects the slowing service gains and higher added headcount to result in suspended cost mitigation, given its inability to generate capacity through asset turns.

Also, the analyst expects negative leverage as well as increased fuel costs to lead to lower margins.

Price Action: NSC shares are trading lower by 3.51% at $190.02 on the last check Monday.