Norfolk Southern -- Buy Before the Revisions

Most analysts who cover Norfolk Southern rate its stock "buy," and Barclays expects upward revisions after first-quarter earnings are released.
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BOSTON (TheStreet) -- Buy before the train leaves the station.

That's the opinion of

Barclays

(BCS) - Get Report

analysts. The bank's Gary Chase said more cargo and higher prices will serve as catalysts for railroad companies in the first quarter of 2010, causing analysts to revise their earnings estimates on better-than-expected results, to be released this month.

Barclays' favorite pick is Virginia-based

Norfolk Southern

(NSC) - Get Report

, whose stock gained 11% last month. Norfolk Southern is scheduled to release its financial report on April 27.

Fourth-quarter profit tumbled 32% to $307 million, or 82 cents a share, as revenue fell 16% to $2.1 billion. The operating margin narrowed from 32% to 26%, tighter than those of competitors

Canadian National Railway

(CNI) - Get Report

and

Union Pacific

(UNP) - Get Report

. Norfolk's return on equity of 10% also lagged behind peers'.

Barclays expects the stock to rise because "longer-term expectations are lowest."

TheStreet's

stock model measures Norfolk's PEG ratio, a measure of value relative to expected growth, at 1, indicating it's fairly valued. (A PEG ratio below 1 would signify a bargain.) But if Barclays is correct and analysts are overly pessimistic about the company's growth prospects, the stock may get a lift as forecasts rise.

Based on traditional valuation measures, Norfolk Southern is cheaper than its peer group. The stock trades at a price-to-projected-earnings ratio of 14, a price-to-book ratio of 2 and a price-to-cash-flow ratio of 11, reflecting 28%, 17% and 4.6% discounts to its respective industry averages.

TheStreet's

model rates Norfolk Southern "hold," ranking it as the 10th-best rail stock, behind "buy"-rated Canadian National, Union Pacific and

CSX Corp.

(CSX) - Get Report

.

However, Barclays isn't the only firm advising clients to purchase shares. Of researchers covering Norfolk Southern, 14, or 56%, rate its stock "buy" and 11 rate it "hold."

Stifel Nicolaus

(SF) - Get Report

and

Deutsche Bank

(DB) - Get Report

expect Norfolk Southern to advance 11% to $64.

Credit Suisse

(CS) - Get Report

expects the shares to touch $63 and

UBS

(UBS) - Get Report

agrees with Barclays, projecting a share price of $62. Despite limited upside, the stock deserves consideration.

Norfolk Southern's stock has returned 4% annually, since 2007, excluding dividends. Barclays' thesis could prove accurate, but in the latest reporting period, Norfolk Southern missed consensus estimates by a margin of 2.5% for adjusted earnings per share and 2.7% for GAAP EPS. The stock dropped 4.6% upon announcement. Eight of the 10 largest shareholders, including

State Street

(STT) - Get Report

and

BlackRock

(BLK) - Get Report

, enlarged their bets in the fourth quarter.

-- Reported by Jake Lynch in Boston.