Norfolk Southern Poised for Long-Term Efficiency, Analyst Projects Improved Operating Ratios

Norfolk Southern Corporation NSC shares are trading higher after the company reported second-quarter financial results yesterday, and several analysts revised their price target.

On Thursday, the company reported railway operating revenue of $3 billion, up 2% Y/Y, and delivered adjusted earnings of $3.06 per share, beating analyst estimates of $2.86 per share.

RBC Capital Markets analyst Walter Spracklin lowered the price target to $267 (from $270) and reiterated the Outperform rating.

Building on John Orr and the operating team’s progress, NSC has reaffirmed its 2024 guidance of a 66% Operating Ratio, aligning with the consensus estimate of 66.4%.

The analyst expects the company to reach an industry-average O/R of the mid-to-high 50s by 2027, which is crucial to their positive investment outlook.

While management hasn’t set a specific 2027 target, their guidance indicates $250 million in productivity savings within the first six months of productivity drive, $400 million in 1-2 years, and $550 million in 2-3 years, writes the analyst.

The management anticipates progress toward a sub-60% O/R in the first 1-2 years. Although this does not explicitly confirm a sub-60% O/R by 2026 or 57.5% by 2027, Spracklin says these targets are achievable and are not yet reflected in consensus estimates. The analyst reaffirmed the 2024 EPS estimate at $11.83.

Goldman Sachs analyst Jordan Alliger raised the price target to $292 from $280 while maintaining the Buy rating.

The analyst increased the EPS estimates for FY24, FY25, and FY26 due to higher-than-expected EPS results and greater confidence in management’s ability to drive productivity gains and significant margin improvements.

The analyst expects significant OR improvement in H2 2024, with the potential for up to 400 basis points of margin gains.

The likelihood that the projected 100-150 basis points annual OR improvement may be conservative, particularly if economic recovery boosts growth beyond typical forecasts, writes the analyst.

GS economists anticipate industrial production will rise from +0.6% YoY in 2024 to +3.8% YoY in 2025.

Read: Norfolk Southern’s Operational Turnaround To Drive Over 20% EPS Growth Through 2027, Analyst Says

Stifel raised the price target to $241 from $239 and maintained a Hold rating.

Wells Fargo increased the price target to $270 from $260 and reiterated an Overweight rating.

Investors can gain exposure to the stock via IShares Trust IShares U.S. Transportation ETF IYT and Tidal ETF Trust Aztlan North America Nearshoring Stock Selection ETF NRSH.

Price Action: NSC shares are trading higher by 11.2% to $247.91 at last check Friday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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