NSC - Embedded Expectations Analysis - 2020 05 29
Norfolk Southern Corporation (NSC:USA) currently trades near corporate averages relative to UAFRS-based (Uniform) earnings, with a 22.0x Uniform P/E. At these levels, the market has expectations for profitability to sustain peaks, but management may be concerned about volume declines, excess locomotives, and cost reduction initiativesSpecifically, management may lack confidence in their ability to improve their operating ratio and bottom-line growth, increase operating leverage, and mitigate the impact of declines in volume and shipment counts. In addition, they may have concerns about excess locomotives in their fleet, their ability to sideline and dispose locomotives, and their ability to idle and convert hump terminals. Moreover, they may lack confidence in their ability to sustain cost reductions through fuel efficiency gains and lower fuel consumption, moderate capex growth, and maintain train weight improvements. Furthermore, they may be exaggerating their superior service and improved cost structure, their business resiliency through market disruptions, and the progress of their DC to AC locomotive fleet upgrades
Norfolk Southern is a holding company. Through its subsidiaries, the company is engaged in the rail transportation of raw materials, intermediate products, and finished goods primarily in the Southeast, East, and Midwest and, via interchange with rail carriers, to and from the rest of the United States. The company also transports overseas freight through several Atlantic and Gulf Coast ports. The company provides intermodal network in the eastern half of the United States. The company's railroad operates in several states and the District of Columbia. The company's system reaches manufacturing plants, electric generating facilities, mines, distribution centers, transload facilities, and other businesses in its service area.
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