Norfolk Southern (NSC) Stock Soaring on Proposed Canadian Pacific Railway Merger

Norfolk Southern (NSC) stock is up in early morning trading on Wednesday after the company released details regarding Canadian Pacific Railway's proposed merger.
By Amanda Albright ,

NEW YORK (TheStreet) -- Norfolk Southern (NSC) - Get Report stock is rising by 3.35% to $143.22 at the start of trading on Wednesday morning, after details regarding Canadian Pacific Railway's (CP) merger proposal were released. 

Transcontinental railway operator Canadian Pacific offered to buy the Norfolk, VA-based holding company, which operates rail transportation in the Southeast and Midwest, for $46.72 in cash. 

Based on Tuesday's closing prices, that indicates an offer of $94.02 per share for Norfolk Southern, Bloomberg reports.

"As our combined network creates more comprehensive end-to-end shipment solutions for our customers while reducing congestion in key corridors such as Chicago, network capacity will expand allowing us to improve service and lower costs-which is both pro-shipper and pro-competition," Canadian Pacific CEO E. Hunter Harrison said in a letter to Norfolk Southern. 

The proposed new company would trade on both the New York and Toronto Stock Exchanges, Canadian Pacific said.

Separately, TheStreet Ratings team rates NORFOLK SOUTHERN CORP as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

We rate NORFOLK SOUTHERN CORP (NSC) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is somewhat low, currently at 0.81, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Despite the fact that NSC's debt-to-equity ratio is low, the quick ratio, which is currently 0.65, displays a potential problem in covering short-term cash needs.
  • 40.80% is the gross profit margin for NORFOLK SOUTHERN CORP which we consider to be strong. Regardless of NSC's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 16.66% trails the industry average.
  • NSC, with its decline in revenue, slightly underperformed the industry average of 9.4%. Since the same quarter one year prior, revenues fell by 10.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • NORFOLK SOUTHERN CORP's earnings per share declined by 16.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, NORFOLK SOUTHERN CORP increased its bottom line by earning $6.39 versus $6.04 in the prior year. For the next year, the market is expecting a contraction of 17.5% in earnings ($5.27 versus $6.39).
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, NSC has underperformed the S&P 500 Index, declining 23.93% from its price level of one year ago. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • You can view the full analysis from the report here: NSC

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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