Tags: NSC | Norfolk Southern | railroads | stocks | investing | Buffett

Norfolk Southern Rides the Rails to Recovery

By Constance Gustke   |   Tuesday, 24 May 2011 02:47 PM

Billionaire investor Warren Buffett is into railroads. He bought Burlington Northern Santa Fe railroad for a hefty $34 billion in 2009, betting that rail was ready for a growth spurt.

And he was right. After enduring a rough industry downturn in 2009, railroad revenues started picking up steam last year. Norfolk Southern Corp. (NSC), whose trains run on 20,000 miles of track, is no exception.

Norfolk Southern’s first-quarter results beat analysts’ estimates. Revenues rose 17 percent to $2.6 billion. The greatest pop came from shipping coal, where revenues spiked 30 percent to $816 billion in the quarter. But Norfok Southern’s two other shipping segments, general merchandise and intermodal (connecting ports and trucks), also saw double-digit growth.

Analysts think that demand will stay strong. They expect Norfolk Southern to generate 25 percent earnings growth in 2011 and 15 percent in 2012, according to Zacks. In the first quarter, the railroad’s diluted earnings per share rose 32 percent. Meanwhile, it pays a generous 2.2 percent dividend.

Tightly run, Norfolk Southern has pocketed about $1 billion in free cash over the past six years.

Higher targets

Analysts are cheered by these rosy numbers. Of the 32 analysts tracked by Thompson/First Call, nine have strong buy recommendations, with 12 buys, nine holds and just two underperforms.

Jefferies analysts have a target price of $78 on the stock. But other analysts are setting their targets around $81. Averaged, that represents a roughly 10.5 percent premium to recent trades.

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Billionaire investor Warren Buffett is into railroads. He bought Burlington Northern Santa Fe railroad for a hefty $34 billion in 2009, betting that rail was ready for a growth spurt. And he was right. After enduring a rough industry downturn in 2009, railroad revenues...
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