NEW YORK (TheStreet) -- Norfolk Southern Corp. (NSC - Get Report) shares are down 6.12% to $87.41 on Friday morning after the U.S. railroad operator's board announced this morning that it unanimously rejected Canadian Pacific Railway's (CP) $28.4 billion takeover offer.
However, TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio is bullish on Northfolk Southern, saying: "Own Norfolk Southern because it's a very good company that happens to be temporarily stymied by strong dollar and a decline in coal, which will not get better, but they will fix it because they always do."
Operator of a transcontinental railway in Canada, Canadian Pacific had proposed to acquire the company for $46.72 in cash and a fixed exchange ratio of 0.348 shares.
After thoroughly reviewing the takeover bid, Norfolk Southern's board had "concluded that the indication of interest is grossly inadequate, creates substantial regulatory risks and uncertainties that are highly unlikely to be overcome, and is not in the best interest of the company and its shareholders," the company stated.
Norfolk Southern CEO James Squires also noted that Canadian Pacific's short-term cut-to-the-bone strategy would have a negative impact on the company's revenue.
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 17.4% in earnings ($5.28 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 18.56% 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