Who says the old economy can’t be hot? Norfolk Southern Corporation (NSC), the east coast railroad transportation company, recently reported record second quarter results and raised its dividend. This Zacks #1 Rank (strong buy) is a value stock with a forward P/E of 12.6.
Norfolk Southern operates a railroad in 22 states and the District of Columbia. It serves all the major container ports in the Eastern United States through 20,000 route miles.
The company is a big transporter of coal and industrial products.
Norfolk Southern Reports Record Second Quarter
On July 26, Norfolk Southern reported record second quarter results as net income soared 42% to a record $557 million.
The company beat the Zacks Consensus Estimate by 7%. Earnings per share were $1.38 compared to the consensus of $1.29. It made just $1.04 last year.
Railway operating revenue climbed 18% to a new second quarter record of $2.9 billion due to a 14% increase in revenue per unit.
Coal revenue drove the quarter, as it rose 28% to $893 million compared to the second quarter of 2010. General merchandise also gained 12% to $1.4 billion and Intermodal revenue rose 20% to $540 million.
The railway operating ratio also improved to a second quarter record of 69.5% from 69.8% a year ago.
2011 Zacks Consensus Estimate Rises
Analysts have been mixed with their estimates over the prior 30 days. 2 have raised but 3 have lowered.
Still, the 2011 Zacks Consensus Estimate has risen 2 cents to $5.14 in that time and is up from $4.90 just 60 days ago.
This is earnings growth of 32% as the company made only $3.91 in 2010.
Has Rewarded Shareholders Since 1982
On July 26, Norfolk Southern announced it was raising its regular quarterly dividend 7.5% to 43 cents from 40 cents per share. It was payable to shareholders on Sep 10.
Since its founding in 1982, the company has paid dividends every single quarter- or 116 consecutive quarters.
It currently yields 2.7%.
Norfolk Southern Is a Value Stock
Since the March 2009 low, Norfolk Southern shares had been on a straight shot higher until the sell off this summer made a major dent in the rally.
However, with rising earnings estimates and a falling stock price, this makes shares even more attractive to value investors. The company has a PEG of 0.7. A PEG under 1.0 indicates that it is undervalued.
In addition to a forward P/E under 15, the company also has a price-to-book ratio of 2.2. A P/B ratio under 3.0 usually indicates value.
Norfolk Southern is expected to have double digit earnings growth in 2011. Combined with its strong fundamentals and this makes this Zacks #1 Rank (strong buy) stock a good value.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.
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