Norfolk Southern CorporationNSC

Morningstar Rating

Stock Research and Analysis

by Keith Schoonmaker

Norfolk Southern is one of the best-run railroads in North America. The firm has one of the top operating ratios in the industry and produces around $1 billion of free cash per year--over 10% of revenue. We like Norfolk's strong operations, defensive Read more

Bulls Say

Norfolk Southern's free cash flow and operating ratio are among the best in the railroad industry.

Norfolk Southern runs the safest railroad in the U.S., as measured by injuries per hours worked. This helps to keep costs down and is evidence of disciplined employees.

Norfolk Southern pays a higher dividend than other railroads. The firm advises its long-run target payout ratio is 33%.

Through its Pocahontas Land subsidiary, Norfolk Southern owns or manages more than 1 million acres of land rich in coal, which provides both captive rail volume and lucrative coal.

The intermodal franchise includes the rail's own intermodal operation, Triple Crown Services. TCS operates 800 tractors and 7,000 RoadRailer containers out of 14 rail terminals in key eastern markets. Read more

Bears Say

Unlike trucking firms, railroads must purchase and maintain their road. High-maintenance capital expenditures consume more than 13% of Norfolk Southern's revenue annually.

Despite the best pricing environment in decades, Norfolk is earning a return on invested capital only around its cost of capital.

Railroads are obligated to haul hazardous materials, which subjects them to high liabilities. Accidents like the 2005 derailment in Graniteville, S.C., can be tragic and expensive (lawsuit settled April 2008).

Railroads like Norfolk Southern benefit from carrying coal traffic. Environmental regulation may push utilities toward natural gas, which is cleaner but significantly more expensive than coal.

Norfolk Southern has a significant automobile franchise, which is highly subject to the cyclical automobile market. Auto-related carloads declined 23% during 2008 and look even worse in 2009. Read more

Strategy

Norfolk Southern operates one of the most profitable and safest railroads. As a result of providing a high level of service, the firm is empowered to raise rates and apply effective fuel surcharges. Read more

Management

Norfolk Southern is a well-run, disciplined railroad, as evidenced by its solid operating ratio, yield expansion, and outstanding safety record. CEO Wick Moorman has been at the helm since late 2005 and has presided over the firm during the present Read more

Profile

Norfolk Southern is a $10.7 billion railroad operating in the eastern United States. On 21,000 miles of track, Norfolk Southern hauls shipments of coal (24% of consolidated Read more

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