Railroads should continue to benefit from improving domestic economic activity and offer solid yields and reasonable valuations. One railroad that is significantly under price targets and shows consistently growing earnings is Norfolk Southern (NSC).
Norfolk Southern
Business description from Yahoo Finance (see here):
Norfolk Southern Corporation, through its subsidiaries, engages in the rail transportation of raw materials, intermediate products, and finished goods primarily in the United States. The company transports coal products, such as coal, coke, and iron ore; automotive products, including finished vehicles and auto parts; chemicals products comprising sulfur and related chemicals, petroleum products, chlorine and bleaching compounds, plastics, rubber, industrial chemicals, chemical wastes, and municipal wastes; metals and construction products, such as steel, aluminum products, machinery, scrap metals, cement, aggregates, bricks, and minerals; and paper, clay, and forest products, including lumber and wood products, pulp board and paper products, wood fibers, wood pulp, scrap paper, and clay.
6 reasons NSC is a solid buy at $68 a share:
- The stock yields a solid 2.7%. The company has also raised its dividend payout at a 13% annual clip over the last five years.
- The company should be a primary beneficiary of increasing auto production domestically as it serves 24 assembly plants.
- The company is showing accelerating earnings. Norfolk Southern made $5.39 in FY2011, is scheduled to earn $5.95 in FY2012 and analysts have it making $6.69 a share in FY2013.
- The stock has beat consensus earnings estimates for four straight quarters. It is also priced at just over 11.5 times forward earnings.
- The stock is some 30% under current consensus price targets. The median analysts' price target on NSC is $88. Credit Suisse has an "Outperform" rating and a $89 price target on the stock.
- The stock has a low five year projected PEG (.70) and it is continuing to drive additional growth by building out its intermodal capacity.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NSC over the next 72 hours.
