Wednesday, UBS maintained a Buy rating on Norfolk Southern (NYSE: NSC) and increased the price target to $309.00 from $289.00, following the company's strong third-quarter earnings performance. The adjustment comes after the railroad operator reported earnings per share (EPS) of $3.25, surpassing both UBS's estimate and the consensus of $3.11, despite a challenging revenue environment.
The improved financial results were attributed to better-than-expected cost management, which exceeded UBS's projections by approximately $30 million, while revenues met expectations. Norfolk Southern's effective cost control included a one-time $20 million fuel recovery, which was part of a broader effort to scrutinize expenses.
In addition to the third-quarter results, Norfolk Southern forecasted an operating ratio (OR) of around 65.5% for the fourth quarter of 2024. This figure is adjusted from the 63.4% OR reported in the third quarter and accounts for the one-time fuel recovery, typical seasonal variations, and an estimated $20 million in hurricane-related operating costs.
UBS's updated price target reflects confidence in Norfolk Southern's ability to maintain a strong performance amid these factors. The firm believes that the company has set a reasonable expectation for the fourth quarter, with the potential for even better results.
In other recent news, Norfolk Southern Corporation (NYSE:NSC) reported a robust third-quarter performance, with a 23% increase in adjusted earnings per share, reaching $3.25, and a 3% rise in revenue, totaling $3.05 billion.
Analyst firms Jefferies, Barclays, and Citi have acknowledged these strong results, raising their price targets for Norfolk Southern to $285, $290, and $302 respectively, while maintaining positive ratings.
The company's Chief Operating Officer, John Orr, was recognized for his leadership in advancing Positive Train Control implementation.
Despite potential operating ratio deterioration signaled for the fourth quarter, the company remains confident in achieving its target of a sub-60 operating ratio, contingent on macroeconomic support. These are recent developments at Norfolk Southern Corporation..
InvestingPro Insights
Norfolk Southern's recent performance and UBS's bullish outlook are further supported by data from InvestingPro. The company's financial metrics reveal a strong foundation, with a market capitalization of $58.92 billion and an impressive gross profit margin of 48.31% for the last twelve months as of Q3 2024. This aligns with one of the InvestingPro Tips highlighting Norfolk Southern's "impressive gross profit margins."
The company's dividend history is particularly noteworthy. InvestingPro Tips indicate that Norfolk Southern "has raised its dividend for 7 consecutive years" and "has maintained dividend payments for 43 consecutive years." This demonstrates a long-term commitment to shareholder returns, which could be attractive to income-focused investors.
However, it's important to note that Norfolk Southern is "trading at a high P/E ratio relative to near-term earnings growth," according to another InvestingPro Tip. This suggests that investors should carefully consider the current valuation in light of future growth prospects.
For readers interested in a more comprehensive analysis, InvestingPro offers 11 additional tips on Norfolk Southern, providing a deeper understanding of the company's financial health and market position.
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