Tags: Norfolk | Southern | linchpin | NSC

Norfolk Southern: An Economic Linchpin

By    |   Tuesday, 13 Mar 2012 08:36 AM

Norfolk Southern (NSC), the second-biggest railroad in the eastern United States, is a strong player in a necessary business, and one that is an economic linchpin.

Norfolk carries coal, intermodal containers, and a mix of automobile, agriculture, metal, chemical, and forest products over its approximately 20,000 miles of track in 22 states and Washington, D.C.

About 31 percent of revenue comes from coal, 19 percent from intermodal traffic, and between 7 and 13 percent each from the remaining categories, according to Morningstar.

Location is crucial for railroads, and Norfolk Southern serves every major container port in the eastern United States. It offers the biggest intermodal network in the East and provides easy connections to other railroads.

Norfolk carries coal directly from Illinois and Appalachian mines and transfers Powder River Basin coal from Western railroads.

Some of its coal travels in heavy loaded cars dropping downhill to Norfolk's East Coast coal-loading operations. Then the cars travel back uphill empty, allowing the company to save on fuel costs.

Happy shareholders


Norfolk Southern has rewarded shareholders richly over the years. During the past decade, the company’s shares have produced an annualized total return of 13.4 percent, more than four times that racked up by the Standard & Poor’s 500 Index.

Norfolk Southern’s dividend has soared more than 100 percent over the last five years, and the stock recently sported a yield of 2.74 percent.

Standard & Poor’s analyst Kevin Kirkeby has a four-star buy rating on Norfolk Southern shares. “Medium-term trends in NSC's primary markets remain favorable and support rising traffic,” he writes.

“We see investments in its network improving capacity on heavily trafficked lanes like the Heartland and Crescent corridors and leading to greater conversion of truck traffic
over to rail, particularly as the economy recovers and truck capacity tightens.”

The company’s fourth-quarter profit jumped 19 percent to $480 million from a year earlier. Revenue gained 17 percent to $2.8 billion.

Norfolk Southern next reports earnings April 26.

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